General Manager Succession in Multinational Enterprise Subsidiaries.pdf

CHAPTER 1: GENERAL MANAGER SUCCESSION IN MULTINATIONAL

ENTERPRISE SUBSIDIARIES

INTRODUCTION

The general manager (GM) role in foreign subsidiaries of multinational enterprises

(MNEs) is important to subsidiary-level development and performance (Björkman, Fey, & Park,

2007; Meyer, Li, & Schotter, 2020; O’Brien, Scott, Andersson, Ambos, & Fu, 2019). The

staffing of this position is thus a critical decision in MNEs (Beechler, Bird, & Taylor, 1998;

Dowling, Welch, & Schuler, 1999). A sizeable body of literature on international human

resource management (IHRM) in subsidiaries of MNEs exists (Delios & Björkman, 2000; Fang,

Jiang, Makino, & Beamish, 2010; Gaur, Delios, & Singh, 2007; Gong, 2003; Tarique, Schuler, &

Gong, 2006). However, by mainly adopting a nationality-based view (e.g., Harzing, 2001;

Kessapidou & Varsakelis, 2003; Peng & Beamish, 2007; Schotter & Beamish, 2011; Thompson

& Keating, 2004), these existing studies paint a snapshot of the talent management within

subsidiaries and are overly simplistic (Meyer et al., 2020).

Thus far, there is a paucity of theoretical and empirical research on subsidiary GM

successions (For exceptions, see Bebenroth & Froese, 2020; Pitcher, Chreim, & Kisfalvi, 2000;

Selmer & de Leon, 1997; Selmer & Luk, 1995), despite the fact that IHRM systems are

inherently dynamic (Rees & Smith, 2017; Taylor, Beechler, & Napier, 1996) and that the

replacement of GMs can occur in the history of any organization (Haveman, 1993). There are

two possible reasons for this substantial gap in the literature. First, the theoretical development

on the dynamic relationships between foreign subsidiary-level variables in general is limited

(Riaz, Rowe, & Beamish, 2014). Second, empirically investigating complex issues over time and

data collection in this regard is intricate and challenging (Brewster, Mayrhofer, & Smale, 2016).

The lack of nuanced attention on this topic is unfortunate, because GM succession has the

potential to strongly impact a subsidiary outcomes (Colakoglu, Tarique, & Caligiuri, 2009).

Decision makers in many MNEs still do not know how and where to find the best GM

candidates (Collings, Scullion, & Morley, 2007; Tarique & Schuler, 2010), thus failing to

identify, deploy, and manage talent for this position effectively (Mellahi & Collings, 2010). As

the risk of selecting the wrong manager is greater than any time in the past (Donatiello, Larcker,

& Tayan, 2018), there is need for a systematic understanding of subsidiary GM successions. The

task is particularly pressing in this challenging time, given that the COVID-19 pandemic spurs

MNEs’ strategic reorientation (and thus GM change) in many host countries but it also renders

sending managers on international assignments difficult (Caligiuri, De Cieri, Minbaeva,

Verbeke, & Zimmermann, 2020). Meanwhile, the pandemic exposes an old problem, that is,

there are talented managers as well as poor performers in foreign subsidiaries remaining in

“blind spots” (Mellahi & Collings, 2010), which then has pushed many MNE decision makers to

reconsider whether they indeed have the right people in the right places.

In contrast to the limited succession literature within the field of international management

(IM), the managerial succession problem has been studied widely in strategic leadership (Berns

& Klarner, 2017; Bilgili, Calderon, Allen, & Kedia, 2017; Giambatista, Rowe, & Riaz, 2005;

Hutzschenreuter, Kleindienst, & Greger, 2012; Kesner & Sebora, 1994; Schepker, Kim, Patel,

Thatcher, & Campion, 2017). Considerable evidence exists that the characteristics of the

incumbent GM (e.g., tenure, skills, prestige) (Boeker, 1992), the composition of the board of

directors (Shen & Cannella, 2002), the firm’s performance and characteristics (Kesner & Sebora,

1994), and the environmental dynamics (Friedman & Singh, 1989) all affect the change in GMs.

In this parallel domain, three types of models may hold the potential to inform subsidiary

GM change: (I) the longitudinal models, which adopt a dynamic perspective to analyze the

(acceleration or deceleration) momentum of repeated GM changes (Amburgey & Miner, 1992;

Beck, Brüderl, & Woywode, 2008); (II) the power model, which is built on the premise that the

existing GM in a poorly performing organization can use strategic configurations to gain power

in order to defer succession (Boeker, 1992; Drazin & Rao, 1999); and (III) the contingency

model, which primarily focuses on whether the new GM is externally or internally appointed,

and when the benefits of each successor type are likely to occur (Finkelstein, Hambrick, &

Cannella, 2009; Georgakakis & Ruigrok, 2017). These models, though insightful, have been

developed in domestic settings. Managing human resources within MNEs, however, is “more

than a matter of scale and presents the field with unique and complex challenges” (Collings,

Scullion, & Curran, 2018: 378). This suggests that insights drawn from the strategic leadership

literature may warrant theoretical adaptations in order to inform subsidiary GM changes.

This dissertation is aimed as a step towards uncovering and explaining these adaptations in

order to inform subsidiary GM successions in a coherent manner. Essay 1 focuses on the

evolution of MNE subsidiaries by exploring how multiple GM changes unfold in the setting of

foreign subsidiaries. By drawing on evolutionary theory (Kogut & Zander, 1993, 1995, 1996,

2003) and empirical observations, I argue that: first, the deceleration and acceleration momentum

for further GM change can take place sequentially; and second, the continual GM change can be

both adaptive and disruptive, depending on the pace and path of change. Essay 2 aims to explore

how each succession event is triggered or impeded by specifying the process through which

MNE attention and subsidiary GM power jointly affect subsidiary GM succession. By

contrasting the MNE attention perspective (Ambos, Andersson, & Birkinshaw, 2010; Bouquet &

Birkinshaw, 2008; Monteiro, 2015) with the strategic contingencies perspective (Drazin & Rao,

1999; Hickson, Hinings, Lee, Schneck, & Pennings, 1971), I argue that strategic configurations,

from which GMs of foreign subsidiaries may accrue power to defer succession in a poorly

performing organization (Boeker, 1992), can also enhance MNE monitoring, thereby facilitating

subsidiary GM changes. Essay 3 aims to explore the micro-process through which different types

of subsidiary GM successors are selected and managed, and how these succession decisions link

to subsidiary performance. Through considering the nationality-based strategy and the origin-

based strategy together, this qualitative inquiry reveals that effective GM successors for local-

market-seeking subsidiaries need to be able to simultaneously confront various facets of bounded

reliability (BRel) (Kano & Verbeke, 2015, 2019; Lumineau & Verbeke, 2016; Verbeke &

Greidanus, 2009). Essay 3 delineates several safeguards that can economize on BRel effectively.

In the remainder of this chapter, I first briefly review the managerial succession research.

Next, I discuss how this dissertation addresses the theoretical and empirical gaps in existing

studies on subsidiary GM succession. To that end, I also present a short overview of the afore-

mentioned essays. I then briefly touch upon this dissertation’s contributions.

MANAGERIAL SUCCESSION RESEARCH

The nationality-based view

Existing subsidiary staffing studies mainly argue that subsidiaries can choose between

host-country nationals (HCNs), parent-country nationals (PCNs), and third-country nationals

(TCNs) to staff managerial positions (Gaur et al., 2007; Shin, Hasse, & Schotter, 2017). Each of

these nationality-based staffing choices may serve a unique strategic purpose. PCNs may possess

a greater understanding of the MNE’s culture, and thereby can facilitate communication with the

headquarters and align the subsidiary’s operations with the interests of the MNE (Tarique et al.,

2006). Moreover, the role of PCNs in controlling the subsidiary on behalf of the headquarters is

gaining prominence in the literature (Collings, Scullion, & Dowling, 2009). In contrast,

researchers view HCNs as being more familiar with the host-country environment, and thus

being more effective in localizing the subsidiary’s operations (Gupta & Govindarajan, 1991).

More recently, researchers have begun to fine-tune the nationality-based staffing

framework by either expanding the category of subsidiary GMs or bringing to the fore the

importance of organizational and environmental contingencies (for a detailed list, see McNulty

& Brewster, 2017). Examples demonstrating the former endeavor include studies on expatriates

of host-country origin (Thite, Srinivasan, Harvey, & Valk, 2009), the local employment of ex-

HCNs (Tung & Lazarova, 2006), the localization of expatriates (Tharenou & Harvey, 2006), and

the employment of migrants (Ariss, 2010); whereas the latter is mainly manifested in studies on

the moderating effects of institutional distance, cultural difference, headquarters and subsidiary

characteristics, and intraorganizational relationships on the utilization of various nationality-

based staffing strategies (e.g., Boyacigiller, 1990; Gaur et al., 2007; Gong, 2003; Peng &

Beamish, 2014; Rickley & Karim, 2018; Schotter & Beamish, 2011a).

This research agenda has been established as one of the cornerstones of the field of IHRM

(Thomas, Lazarova, & Inkson, 2005) and some studies also began to adopt this nationality-based

view to investigate subsidiary GM successions (e.g., Bebenroth & Froese, 2020). However,

research on subsidiary GM successions is only at a rather nascent stage. In a parallel fashion,

strategic leadership researchers have investigated this topic extensively within a domestic

context and formulated several insightful models, to which I now turn.

The longitudinal model

Key personnel succession is one of the most critical managerial issues for a firm (Schepker

et al., 2017), and often an ongoing concern at the leadership level (Friedman, 2017). Extensive

research has dealt with succession antecedents (for a review, see Berns & Klarner, 2017), among

which two competing lines of inquiry have stimulated a fruitful conversation. First, some

researchers argue that organizational change is a self-reinforcing process (Amburgey & Miner,

1992), such that prior change accelerates the momentum of further change (Amburgey, Kelly, &

Barnett, 1993). In the present context, I call it the acceleration model. Second and more recently,

other researchers found that after controlling for firm-level heterogeneity, prior change in GMs

reduces the likelihood of subsequent change such that the multiple changes demonstrate a

deceleration pattern (Beck et al., 2008). Accordingly, I call it the deceleration model.

Because the foregoing acceleration–deceleration models suggest different paces of change,

and the pace of change is found to be a major contingency factor that moderates the succession–

performance relationships (Klarner & Raisch, 2013; Rowe, Cannella, Rankin, & Gorman, 2005),

it follows that the momentum of continual GM changes may have implications for firm

performance. However, theoretical and empirical inconsistencies also exist among the

organizational studies on the consequences of GM change (Giambatista et al., 2005;

Hutzschenreuter et al., 2012; Kesner & Sebora, 1994). Common-sense theory (and the

succession-adaptation model), for example, suggests that managerial successions, as a reflection

of the firm’s adaptive nature, contribute to performance improvement (Grusky, 1963; Huson,

Malatesta, & Parrino, 2004). In contrast, vicious cycle theory argues that successions disrupt

routines (Grusky, 1960; Klarner & Raisch, 2013), thus worsening firm performance.

The power model

Concurrently, the performance–power–succession model has emerged to investigate the

factors contributing to GM change (Boeker, 1992; Fredrickson, Hambrick, & Baumrin, 1988;

Salancik & Pfeffer, 1980). The central premise is that when decision makers do not like a

performance outcome, a frequent response is to replace the individual who is accountable for the

outcome (Pfeffer & Salancik, 2003). Thus, poor firm performance, for example, will likely result

in the dismissal of the GM (Boeker, 1992; Boeker & Goodstein, 1993; Kesner & Sebora, 1994;

Wiersema & Bantel, 1993). However, the relationship between performance and succession is

not as direct and simple as it seems (Pfeffer & Salancik, 2003; Salancik & Pfeffer, 1980), given

that a variety of sociopolitical forces may intervene between performance and the change of GM

(Fredrickson et al., 1988). When an incumbent controls critical resources, for example, the GM

in a poorly performing organization can gain power to avert replacement (Boeker, 1992). This

performance–power–succession model has also been applied to the study of other types of

executive roles such as strategic business unit managers (Drazin & Rao, 1999).

The contingency model

A third well-researched topic is GM successor origin. As the selection of a new GM offers

a great opportunity for decision makers to align their organizations with the environment and the

interests of the board of directors (Friedman, 2017; Ocasio, 1999), considerable evidence exists

that decisions on whether the new GM comes from outside or inside the firm can impact firm

performance (Finkelstein et al., 2009). The mechanisms of this impact are threefold. First,

outsiders are normally conceived of as change agents such that external successors tend to pursue

more strategic change (Wiersema, 1992), while internal promotion may indicate the board’s

preference to broadly maintain the current strategic thrust (Finkelstein et al., 2009). Second,

insiders possess more firm-specific knowledge and more established social ties to employees

(Berns & Klarner, 2017) and managerial-level political coalitions (Wiersema, 1992). Third, to

the extent that the organization has more detailed information about insider successors,

information asymmetry is less severe (Zajac, 1990). These mechanisms have also been

successfully applied to the study of other types of executive roles. Of particular interest is the

study of DeOrtentiis et al. (2018) on subunit managers in domestic firms. Their results showed

that internal candidates demanded lower starting salaries, even though their performance ratings

were higher and their probability of promotion was lower. Consequently, the authors suggested

that firms staff the subunit manager position with internal candidates whenever possible.

MNE EVOLUTION AND SUBSIDIARY GM SUCCESSION IN CHAPTER 2

Levitt and March (1988) view organizations as a multilevel learning system where

inferences are encoded from history into routines that independently guide future organizational

actions. Within such a framework, researchers have established that repetitive momentum can

occur when firms keep repeating a specific action (Amburgey et al., 1993; Amburgey & Miner,

1992). This is because the efficiency of any particular procedure increases with use, which then

results in the more frequent use of the procedure (Levitt & March, 1988). In this light, Ocasio

(1999) found that as the rules of succession are established, a momentum is created such that

firms likely repeat CEO succession of the same type. Repetitive momentum is also found

elsewhere (Greve, 2013). Within IM, for example, studies have shown that multiple changes

during the evolution of international equity joint ventures (IJVs) can trigger more changes

(Chung & Beamish, 2010). Also, decision makers in MNEs are likely to repeat the mode of

internationalization they have used in the past (Oehme & Bort, 2015).

However, the momentum argument builds on some behavioral assumptions that have been

challenged. Beck et al. (2008) argue that as organizations learn to change by changing over time,

the need to replace GMs again should decline. Through the accumulation of experience in

changing GMs, decision makers can refine their succession routines, aspirations, and search and

attention rules. As such, this argument contrasts squarely with the momentum hypothesis, but

underneath this conceptualization lie some strong assumptions including that information is rich

and available and that feedback is prompt and non-random. Realistically, however, when the

organizational structure and environment are complex, key outcome information may remain

unclear (Bazerman, 2006).

In parallel, evolutionary theorists also highlight MNEs’ superior efficacy in learning and

knowledge transfer. But the distinctive features of MNEs and their environments render the

preceding acceleration–deceleration models less applicable to the setting of subsidiaries. First,

the acceleration pattern may prevail because the environment facing MNEs is much more

complex than that facing domestic firms (Kostova, Roth, & Dacin, 2008). As noted by Cooke et

al. (2019), MNEs have to grapple with more complex and challenging contexts within and

outside the organization as well as within and across national borders. Second, the deceleration

pattern may prevail, as MNEs specialize in the creation and internal transfer of knowledge

(Kogut & Zander, 1993; Nohria & Ghoshal, 1997). These features therefore lead to the following

puzzle: Will the complexity of environments impede MNEs from refining their subsidiary GM

succession routines, or will MNEs’ superior efficiency in knowledge creation and transfer

facilitate the refinement of succession routines? Investigating the momentum of GM successions

is important, because it might lead to organizational inertia or lock the subsidiary into continual

GM change, which will in turn affect subsidiary performance and survival.

Essay 1

The first essay (Chapter 2) is entitled “Antecedents and consequences of general manager

successions in foreign subsidiaries”. It examines the longitudinal dynamics of subsidiary GM

succession over the MNE’s evolution process. Specifically, it aims to address whether GM

successions accelerate or decelerate the momentum for further GM change, and improve or

disrupt firm performance. I argue that while MNE managers can learn from prior GM change in

the subsidiary in order to appoint a right candidate, thus improving subsidiary performance and

decelerating the momentum for further GM change, the reduced marginal costs of making

succession decisions may increasingly render GM change more likely. The accumulated shocks

with every change may ultimately translate into poor subsidiary performance and lower survival

likelihood. To improve survival, I suggest that the subsidiary can deploy a PCN GM at its

founding, followed by HCN successors, as this sequencing logic maximizes the value of

knowledge recombination.

I develop a mixed-methods approach (Hurmerinta-Peltomäki & Nummela, 2006; Watkins

& Gioia, 2015). In the first stage, I formulate a preliminary analytical framework based on the

existing succession literature. I then collect qualitative data through in-depth, semi-structured

interviews. In total, I have prepared over 550 pages of transcriptions and over 140 pages of

notes. I then constantly go back and forth between theory and data, through systematic

combining (Dubois & Gadde, 2002), to explore which theories can better explain the succession

phenomenon in the setting of foreign subsidiaries. In the second stage of the investigation, I use

quantitative hypothesis testing to better inform the subsidiary GM successions. Fixed effects

logit regression is employed to control for subsidiary heterogeneity in the propensity to change

the GM (Beck et al., 2008). In a similar vein, the performance and survival models also address

firm heterogeneity. The quantitative analysis combines the Toyo Keizai NEEDS Merged

Database (Shin et al., 2017) with the Penn World Table (Feenstra, Inklaar, & Timmer., 2015).

MNE ATTENTION AND SUBSIDIARY GM SUCCESSION IN CHAPTER 3

Rooted in a power-dependence view (Emerson, 1962), Hickson et al. (1971) focused on

structural sources of intra-organizational power and pointed out that the centrality of workflows,

the substitutability of activities, and the ability to cope with critical uncertainties in an integrative

manner determine the variation in interdependence between organizational subunits of domestic

firms (hereafter subunits). Building on the ideas advanced by Hickson and his colleagues, Drazin

and Rao (1999) found that the availability of viable candidates and the critical contingencies

(e.g., revenue and market share) controlled by the incumbent subunit manager interact with poor

subunit performance to either increase or decrease succession probability. In parallel with the

development of the interdependence-based approach, more recently, a market dependence-based

approach to identify subunit power has emerged (Xia, Yu, & Lin, 2019). The central thesis of

this new strand of research is that the exchange of resources (Jacobs, 1974) is not viewed as a

necessary condition for subunits to shape their power bases. Instead, the relative importance of

the market in which the subunit operates will suffice to determine its power (Xia et al., 2019).

Drawing on the same structural perspective (Hickson et al., 1971), Bouquet and

Birkinshaw (2008: 582) pointed out that “the more powerful the subsidiary… the greater the

amount of attention… from corporate headquarters.” The structural determinants of power and

thus the MNE’s positive attention to the subsidiary are the subsidiary’s relative strength within

the MNE and its local market significance. As a result, strategically important subsidiaries will

gain more recognition from their headquarters. But the authors also stressed that the attention

from headquarters is not always positive. It may lead to interventions from the MNE and the

replacement of management when subsidiary performance disappoints, which is contrary to the

performance–power–succession model based on domestic subunit studies (Drazin & Rao, 1999).

The foregoing inconsistency suggests that the extant model might need theoretical

extensions in order to account for foreign subsidiary GM successions. However, there is a lack of

international examination of the power–succession link (Pi & Lowe, 2011). To develop a more

predictive theory and better utilize the distinctiveness of the MNE context for theory building, I

contrast the MNE attention perspective (Ambos et al., 2010; Bouquet & Birkinshaw, 2008;

Monteiro, 2015) with the strategic contingencies perspective (Drazin & Rao, 1999; Hickson et

al., 1971) to investigate the relationship between foreign subsidiary performance and subsidiary

GM succession. Therefore, the question which guides my research in Essay 2 is: How do

strategic configurations that potentially affect MNE attention and foreign subsidiary GM power

moderate the relationship between poor subsidiary performance and subsidiary GM succession?

Essay 2

Essay 2 (Chapter 3) is entitled “MNE attention and general manager succession in foreign

subsidiaries”. Although the strategic contingencies perspective holds that GMs can accrue power

from strategic configurations to weaken the poor firm performance–GM succession association, I

argue that, in the context of MNEs, when strategic configurations such as the presence of

country-of-origin competitors in the host country and the flows of revenue controlled by the

foreign subsidiary simultaneously enhance subsidiary GM power and MNE monitoring, MNE

managers’ hierarchal power can outweigh subsidiary GM power and strengthen the

performance–succession link. I term this the performance–attention–succession model, which

can also explain why a high expatriate ratio in the subsidiary strengthens the performance–

succession link. Only when structural factors impede MNE monitoring, will the performance–

power–succession model prevail. I also show that changing the GM in a poorly performing

subsidiary can effectively turn around the subsidiary’s performance, but it is contingent upon the

successor’s tenure.

This study employs a mixed-methods approach. Along with the literature review and

deductive theorizing process, I conduct over 45 semi-structured interviews with MNE decision

makers, subsidiary GMs, and the members of the top management who are well-positioned to

offer detailed knowledge of the subsidiary GM successions. The relevant quotes and important

background information collected through the qualitative inquiry in turn enables me to use the

deeper understanding of the phenomenon to better inform the hypotheses development. I then

quantitatively test the hypotheses by employing a fixed-effects logit model. Panel data on the

FDI inflows is collected from the Balance of Payments Database (1991–2013) (World Bank,

2019), and merged with a longitudinal dataset of Japanese FDI: the Toyo Keizai NEEDS Merged

Database (Shin et al., 2017).

SUCCESSOR ORIGIN AND SUBSIDIARY GM SUCCESSION IN CHAPTER 4

As mentioned previously, although existing nationality-based studies add greatly to our

knowledge of subsidiary GM staffing, they only tell half of the story. We still know little about

how MNE decision makers choose internal or external subsidiary GM successors (For

exceptions, see Sonkova, 2015). The lack of theoretical arguments and empirical evidence is

surprising, given that whether to fill job openings through internal or external hires “is one of the

most fundamental staffing decisions organizations must make” (DeOrtentiis, Van Iddekinge,

Ployhart, & Heetderks, 2018: 916).

Some scholars within international management argue that HCNs can better respond to

local demands, that PCNs perform better at integration (e.g., Harzing, Pudelko, & Reiche, 2016;

Shin et al., 2017; Tarique et al., 2006). Implicit is the assumption that HCNs generally align

more with the expectations of subsidiaries, and that PCNs tend to be closer to headquarters

(Michailova, Mustaffa, & Barner-Rasmussen, 2016). It therefore seems that the nationality-based

staffing strategy might be used to partly inform the internal–external categorization.

However, in the setting of MNEs, there is a notion of nestedness of agency relationships

(Hoenen & Kostova, 2015) such that there are two types of insider GM successors, one is from

within the subsidiary, and the other expatriated from within the MNE but outside the subsidiary.

Along this line, therefore, PCN GMs do not necessarily identify more with the headquarters

(Gregersen & Black, 1992) if they are promoted within the host country (Tharenou & Harvey,

2006) or become localized expatriates or permanent transferees who are directly hired by the

subsidiary and will not return to the MNE’s home country (McNulty & Brewster, 2017; Tait, De

Cieri, & McNulty, 2014). On a similar note, HCNs cannot automatically be equated with

subsidiary insiders either. HCNs might also be expatriates from the headquarters (Thite et al.,

2009) or locally hired from rival firms in the host-country (Morris, Snell, & Björkman, 2016).

The theoretical–empirical divide implies that the nationality-based categorization needs

extension (Meyer et al., 2020). To add to this topic, Essay 3, based on a qualitative research

methodology, seeks to develop a new and enhanced model for subsidiary GM successor origin.

Essay 3

The third essay (Chapter 4) is entitled “General manager successors in local-market-

seeking subsidiaries of MNEs: A multiple-case analysis”. In order to explore how decision

makers of MNEs appoint GM successors in their local-market-seeking foreign subsidiaries and

how these succession decisions link to subsidiary performance, this qualitative inquiry adopts

micro-foundational theorizing (Foss & Pedersen, 2019), and uses BRel as both the micro-

foundation and the theoretical thread throughout the theory elaboration process. Although extant

literature suggests that to better address host country business practices and cultures, it is

sensible to deploy a HCN subsidiary GM, I found that using HCN GM successors is not always

the best strategy. For HCN GM successors promoted from within the subsidiary, ex post

opportunism is likely to arise, which may result in unsatisfactory subsidiary performance.

However, while I concur that agency and transaction costs minimization can play an important

role in influencing the international staffing decision (Tan & Mahoney, 2006), I argue that

opportunism in the present context is only a situational occurrence (Lumineau & Verbeke, 2016).

Appointing HCN GMs from outside the subsidiary may address opportunism, but it may entail

divided engagement. Expatriating PCN subsidiary GMs, on the other hand, may also reducing

opportunism, but it may simultaneously lead to over-reliance on existing practices. To

economize on these facets of BRel, Essay 3 reveals several effective managerial safeguards.

Methodologically, I adopt the theory building from cases approach (Eisenhardt, 1989;

Eisenhardt & Graebner, 2007; Gehman et al., 2018). It has a multiple-case design and treats each

case as an experiment (Yin, 1994). I use the series of cases, collected in a theoretical sampling

manner (Eisenhardt, 1989), to test the observations. The unit of analysis is nine wholly-owned

foreign subsidiaries with a local-market-seeking motive. These subsidiaries are from four large,

established manufacturing MNEs that are technical and market leaders. Moreover, I conduct

additional interviews with managers from 11 other foreign subsidiaries to assess the analytical

power and the external validity of the model formulated here (Yin, 1994). The qualitative

analysis, consistent with constant comparison (Eisenhardt, 1989), is based on around 350, 000

words transcriptions of 36 formal one- to two-hour interviews (and nine follow-up interviews),

120 pages of notes, and secondary sources such as published cases, annual financial reports,

media reports, and subsidiary GM resumes from LinkedIn. The results reported in Essay 3 are

six propositions complementing and challenging the traditional views of the nationality-based

staffing decision.

The dissertation overview, shown in Table 1, illustrates the inter-links among these three

integrated essays. Specifically, Essay 1 develops a temporal model that investigates long-term

issues in subsidiary GM staffing and explores the path-dependent nature of continual GM change

within the organization. Thus, the focus of Essay 1 is process. Essay 2 complements Essay 1 by

delving into the individual triggering event that is likely to set the path-building process in

motion, and by showing that both the internal structure of organizations and the external

environment can influence organizational decision making in relation to GM successions. The

focus of Essay 2 is therefore the contextualized event. Essay 3 further delves into the micro-

foundations of subsidiary GM successors. It thus complements Essays 1 and 2 by providing

detailed descriptions of succession decision making. The focus of Essay 3 is people.

Table 1: Dissertation Overview

Essay 1

Essay 2

Essay 3

Essay Title

Antecedents and

consequences of

general manager

successions in foreign

subsidiaries: A mixed-

methods approach

MNE attention and

general manager

succession in foreign

subsidiaries

General manager

successors in local-

market-seeking

subsidiaries of MNEs: A

multiple-case analysis

Research

Question

Will multiple

subsidiary GM

successions accelerate

or decelerate the

momentum for further

GM change, and

improve or disrupt

subsidiary

performance?

How do strategic

configurations that

potentially affect MNE

attention and foreign

subsidiary GM power

moderate the relationship

between poor subsidiary

performance and

subsidiary GM change?

How are subsidiary GM

succession decisions

made by MNE decision

makers, and how do the

succession decisions link

to subsidiary

performance?

Theoretical

Foundation(s)

Evolutionary theory of

the MNE

The MNE attention

perspective against the

strategic contingencies

perspective

The micro-foundational

perspective on bounded

reliability

Methodology

Mixed-methods (theory

creation)

Mixed-methods (theory

construction)

Multiple-case approach

(theory justification)

Empirical Setting

Qualitative data based

on 45 interviews with

MNE and subsidiary

managers; Quantitative

data of subsidiary GM

successors of Japanese

MNEs

Qualitative data

(background information

and relevant quotes)

based on interviews with

MNE managers;

Quantitative data of

subsidiary GMs of

Japanese MNEs

Qualitative data regarding

GM succession decision-

making in nine wholly

owned local-market-

seeking subsidiaries of

four large, manufacturing

MNEs

Essay 1: The pace and path of continual GM change

GM # 2 GM # 3

GM # 1 GM # 4 GM # 5 GM # 6

Essay 2: The trigger and consequence of individual GM change

Essay 3: The microfoundations of GM successor

CONTRIBUTIONS

This dissertation aims to produce knowledge that can both advance the scientific enterprise

and enlighten a community of practitioners (Van de Ven, 2007).

Essay 1 aims to call attention to the dynamic nature of foreign subsidiary GM staffing

strategies (Belderbos & Heijltjes, 2005; Riaz et al., 2014). To the best of my knowledge this is

among the first to investigate the longitudinal dynamics of subsidiary GM successions, thus

improving our knowledge of the broader succession process (Berns & Klarner, 2017). Essay 1

leverages the distinctiveness of MNEs to address the inconsistencies in the extant succession

literature and provides a more predictive theory of continual subsidiary GM change. Essay 1 also

brings to the fore the parenting role of MNEs, which seems arguably more or less absent in

evolutionary theory (Forsgren, 2017; Foss & Pedersen, 2019).

Essay 2 aims to challenge the performance–power–succession model by demonstrating the

intriguing double effect of strategic configurations, which will lead to disparate succession

consequences. Essay 2 extends the succession theory by using the MNE attention perspective as

an alternative explanatory mechanism (Roth & Kostova, 2003) to explain more fully the

performance–succession association in the unique context of MNEs. Also, Essay 2 addresses the

call to empirically investigate the issue of negative headquarters’ attention (Bouquet &

Birkinshaw, 2008). By using temporal progressions of activities as elements of explanation

(Langley, Smallman, Tsoukas, & Van de Ven, 2013), Essay 2 shows the long-term gains of this

attention.

Essay 3 produces detailed descriptions of succession decision making. Focusing on micro-

processes enables this study to move away from the narrow category of expatriate managers to a

more differentiated categorization (De Cieri, Cox, & Fenwick, 2007) and to re-examine the roles

of subsidiary GMs, which are often oversimplified or obscured by GMs’ nationalities (Meyer et

al., 2020). Moreover, Essay 3 addresses the call by Kano and Verbeke (2015) to examine the

various expressions of BRel in large MNEs, focusing on both their antecedents and

consequences. In so doing, Essay 3 corroborates the value of BRel as a standard micro-

foundation in international management research, and makes a strong case for the need to

consider the different facets of BRel in an integrated manner, because the succession strategy to

address one BRel challenge may inadvertently lead to another BRel challenge.

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CHAPTER 1: ANTECEDENTS AND CONSEQUENCES OF GENERAL MANAGER

SUCCESSIONS IN FOREIGN SUBSIDIARIES: A MIXED-METHODS APPROACH

(ESSAY 1)

INTRODUCTION

Key personnel succession is a critical managerial issue in a firm’s lifecycle (Friedman,

2017; Schepker, Kim, Patel, Thatcher, & Campion, 2017). Therefore, it has been subjected to

great scrutiny (Berns & Klarner, 2017; Bilgili, Calderon, Allen, & Kedia, 2017; Farah, Elias, De

Clercy, & Rowe, 2020; Giambatista, Rowe, & Riaz, 2005; Kesner & Sebora, 1994). But only

modest attention has been paid to investigating changes in foreign subsidiary GMs of MNEs.

Meanwhile, the theoretical development on the dynamic relationships between foreign

subsidiary-level variables in general is also limited (Riaz, Rowe, & Beamish, 2014). I view it as

a substantial gap in the literature, as the subsidiary GMs are crucial to subsidiary-level

performance (Meyer, Li, & Schotter, 2020; O’Brien, Scott, Andersson, Ambos, & Fu, 2019) and

changing these managers may materially impact subsidiary performance (Bebenroth & Froese,

2020; Beechler, Bird, & Taylor, 1998). The need for a systematic understanding of subsidiary

GM successions is also pressing, given that the COVID-19 pandemic has spurred MNEs’

strategic reorientation in many host countries at a time when sending managers on international

assignments is difficult (Caligiuri, De Cieri, Minbaeva, Verbeke, & Zimmermann, 2020).

Concurrently, two competing lines of inquiry adopting a dynamic perspective have

emerged in the organizational studies literature to investigate the factors contributing to GM

change. First, some researchers highlight the recursive nature of organizational practices by

arguing that organizational change is considered a self-reinforcing process (Amburgey & Miner,

1992), such that prior change reduces the marginal costs of making similar changes and thus

accelerates the momentum for further change (Amburgey, Kelly, & Barnett, 1993). In the present

context, I call it the acceleration model. But more recently, other researchers have argued that

organizational practices possess adaptive characteristics, as they are prone to learning and

thereby refinement (Jarzabkowski, 2004). Accordingly, empirical evidence from this line of

inquiry reveals that managers can learn to change by changing, therefore earlier changes in GMs

decelerates the momentum for further change (Beck, Brüderl, & Woywode, 2008). I call it the

deceleration model.

The distinctive features of MNEs, however, may render the preceding acceleration or

deceleration models less directly applicable to the setting of foreign subsidiaries. The

acceleration pattern may prevail because the environment facing MNEs is much more complex

than that facing domestic firms (Cooke, Wood, Wang, & Veen, 2019; Kano & Verbeke, 2019),

rendering bounded-rational senior MNE managers more prone to solutions with lower marginal

costs (i.e., making similar changes). However, the deceleration pattern may also prevail when

considering MNEs’ superior capabilities in the creation and internal transfer of knowledge

(Kogut & Zander, 1993). These brief considerations suggest that the acceleration-deceleration

arguments warrant theoretical adaptations in order to inform subsidiary GM change.

Theoretical and empirical inconsistencies also exist among the organizational studies on

the consequences of GM change (Giambatista et al., 2005; Hutzschenreuter, Kleindienst, &

Greger, 2012; Kesner & Sebora, 1994). Common-sense theory, for example, suggests that

managerial successions, as a reflection of the firm’s adaptive nature, contribute to performance

improvement (Allen, Panian, & Lotz, 1979; Grusky, 1963; Huson, Malatesta, & Parrino, 2004).

In contrast, vicious cycle theory argues that successions disrupt routines (Grusky, 1960; Klarner

& Raisch, 2013), thus worsening firm performance. Similarly, however, directly applying these

existing succession-performance theories to the setting of foreign subsidiaries may also present

challenges, because these models were developed within a domestic setting, where no role exists

for the nationality of the GM (Müllner, Klopf, & Nell, 2017). But for MNEs, the nationality of

the subsidiary GM is crucial.

This essay addresses two questions: Will subsidiary GM successions accelerate or

decelerate the momentum for further GM change, and will this improve or disrupt subsidiary

performance? I first draw upon field research to juxtapose my empirical observations against the

extant succession theories. Following the qualitative inquiry, I then ground this study in

evolutionary theory (Kogut & Zander, 1993, 1995, 1996, 2003), central to which is that MNEs

are social communities wherein knowledge can be efficiently created and internally transferred.

It is also inherently dynamic. As the knowledge is routinized from past experiences and can be

recombined with newly acquired knowledge for value maximization (Verbeke, 2003), this theory

enables me to explore long-term issues in subsidiary GM deployment. I finally formulated

hypotheses based on an expanded theory of subsidiary GM successions and draw on Japanese

longitudinal data to test the hypotheses.

I argue that senior MNE managers can draw lessons from past succession experiences to

refine succession routines in order to appoint an appropriate GM successor, thus decelerating the

momentum for further GM change. Concurrently however, with every GM change the marginal

costs of making succession decisions will also decline. This may increasingly result in subsidiary

GM change, as a means of realigning with the external environments and with the interests of the

board of directors (Friedman, 2017; Ocasio, 1999), more attractive (and yet more suboptimal).

From a threshold onward, therefore, prior GM successions can accelerate the momentum for

further subsidiary GM change. Exploring the pace of change then paves the way for a dynamic

investigation of the strategic value of subsidiary GM successions. I argue that the number of

successions may show a curvilinear association with firm performance. Also, shocks associated

with each implementation of the GM succession will accumulate and ultimately translate into

lower survival likelihood. I suggest that MNEs can reduce the survival risk by appointing a PCN

GM at subsidiary founding and change to HCN GMs in the later stage, because this specific

sequencing logic maximizes the value creation potential of knowledge recombination.

This study aims to make the following contributions. I call attention to the dynamic nature

of foreign subsidiary GM staffing strategies (Belderbos & Heijltjes, 2005; Riaz et al., 2014). By

exploring the antecedents of subsidiary GM changes, it shows that the deceleration and

acceleration momentum take place sequentially within the organization. By investigating the

consequences of subsidiary GM changes, it shows that subsidiary GM successions can be both

adaptive and disruptive, depending on the number and pattern of change. As such, it leverages

the distinctiveness of MNEs to address the inconsistencies in the extant succession literature and

provides a more predictive theory of foreign subsidiary GM successions. Next, I review the

extant literature on GM successions, and juxtapose empirical observations in the setting of

foreign subsidiaries against the existing succession theories. I then use an international business

(IB) theory to theoretically re-ground this study and develop hypotheses. Following this, the

data, the measures, and the empirical strategy are outlined. Finally, I present my results and their

implications for theory and practice.

BACKGROUND

The managerial succession problem has been studied widely in the organizational studies

literature (Berns & Klarner, 2017; Bilgili, Calderon, Allen, & Kedia, 2017; Giambatista, Rowe,

& Riaz, 2005; Hutzschenreuter, Kleindienst, & Greger, 2012; Kesner & Sebora, 1994; Schepker,

Kim, Patel, Thatcher, & Campion, 2017). In this body of work, several dynamic models inform

continual GM change, which I will introduce next.

Succession Antecedent: Acceleration–Deceleration Debate

Levitt and March (1988) conceive of organizations as learning systems where inferences

are encoded from history into routines that independently guide future organizational actions.

Within such a framework, scholars have established that repetitive momentum, defined as the

tendency to adhere to the previous direction of actions in current behaviors (Kelly & Amburgey,

1991), can occur when organizations keep repeating a specific action (Amburgey et al., 1993;

Amburgey & Miner, 1992). One reason for the acceleration tendency is that experiential learning

processes are strongly path-dependent (Baum & Ingram, 2002; Sydow, Schreyögg, & Koch,

2009). The efficiency of any particular procedure increases with use, which then results in the

more frequent use of the procedure, irrespective of whether or not the procedure is inferior

(Levitt & March, 1988). Decisions are repeated simply because they were made before (March,

Sproull, & Tamuz, 1991). As firms become more prone to following their own “wisdom,”

repetitive momentum arises (Dobrev, Kim, & Carroll, 2003).

In support of this view, Ocasio (1999) found that as the rules of succession are established,

momentum is created. As a result, organizations are likely to repeat CEO succession of the same

type. Repetitive momentum also exists elsewhere (Greve, 2013). IB studies, for example, have

shown that MNEs are likely to repeat the internationalization mode they have used previously

(Oehme & Bort, 2015). Research has also revealed that multiple equity ownership structure

changes inside IJVs will trigger more ownership structure changes (Chung & Beamish, 2010).

The key to the acceleration argument lies in the idea that accelerated activities may occur

without considering consequences (Greve, 2013). In an IB context, this tendency might be even

stronger, given that some host countries have a legal requirement (e.g., maximum validity of

work permits or intra-company transfer visa) to limit the terms of expatriate managers to three to

five years. If the subsidiary GM is an expatriate, a change is required. However, this acceleration

model builds on some assumptions that have been challenged. Specifically, it assumes away the

facilitating role of the environment and implies the automaticity of learning. But when the

context facilitates or encourages performance feedback and evaluation, learning behavior can

also be “cognitively rich” (Posen, Keil, Kim, & Meissner, 2018).

Rooted in the same Carnegie School tradition (Cyert & March, 1963) as the foregoing

acceleration argument, Beck et al. (2008) pointed out that as organizations learn to change by

changing over time, the need to replace CEOs again should lessen. Therefore, prior changes

decelerate the momentum for further change. Through the accumulation of experience in

changing GMs, firms will refine their succession routines and aspirations, and modify search and

attention rules. Cyert and March (1992) view such dynamics as one of the fundamental

properties of organizations. Thus, this argument contrasts squarely with the acceleration model,

but underneath this argument also lies some strong assumptions: e.g., that information is rich and

available, and feedback is prompt and non-random. Realistically, however, when the

organizational structure and environment are complex or when the decision makers pay only

limited attention to the means-end relationships, key outcome information may remain unclear

(Bazerman, 2006), rendering the refinement of the routines less likely. Within IB, there are also

empirical observations illustrating the boundary conditions of the deceleration argument. For

example, Hébert, Very, and Beamish (2005) argued that theoretically MNEs can learn from past

cross-border merger and acquisition experience to improve their management of similar future

actions (and thus economizing on bounded rationality). But what they found was the opposite.

Succession Consequence: Adaptation–Disruption Paradox

The foregoing acceleration–deceleration models suggest different paces of change, and the

pace of change is found to be a major contingency factor that moderates the succession–

performance relationships (Klarner & Raisch, 2013; Rowe, Cannella, Rankin, & Gorman, 2005).

Efforts to address the acceleration–deceleration debate, therefore, can also lay the theoretical and

empirical foundation for examination of the consequence paradox–the intriguing double effect of

GM successions. Results from two recent meta-analyses (Bilgili et al., 2017; Schepker et al.,

2017), for example, primarily support the disruption perspective, which considers managerial

succession as a destabilizing factor and associated with significant disturbances. Other research

(e.g., common-sense theory and the succession-adaptation model), however, characterizes

managerial succession as an adaptation mechanism (e.g., Grusky, 1963; Huson et al., 2004).

There have been efforts to resolve the inconsistency. For instance, Rowe et al. (2005) deal

explicitly with the topic of time. It indicates that due to time compression diseconomies

(Dierickx & Cool, 1989), new leaders will take time to accumulate organization-specific

knowledge before they can take actions that will positively affect performance. Therefore, if

firms give new leaders time to learn, it is more likely to result in a positive succession-

performance relationship. Soebbing and Washington (2011) offered similar theorization and

corroborative findings in the college football context. The authors noted that when new leaders

are given time to turn around the program, performance will increase.

Underpinning this line of inquiry is a notion that too many changes are disruptive

(Amburgey et al., 1993; Giambatista et al., 2005), thus time is primarily an opportunity. Yet time

can also be portrayed as a threat (Berends & Antonacopoulou, 2014). Because changes in the

external environment render the existing knowledge within the organization obsolete or even

irrelevant (Berends & Antonacopoulou, 2014), and because managers take time to learn in order

to bring about the “real change” (Mitchell & James, 2001), the depreciation of knowledge may

also ensue. Indeed, over time incumbent GMs might be unwilling or unable to make significant

changes (Barner-Rasmussen, 2003; Shen & Cannella, 2002). Thus, to reduce the organizational

inertia, MNEs may consider the subsidiary GM succession as a possible solution. The question

which still remains, then, is how many successions subsidiaries should undertake. Klarner and

Raisch (2013) conceptualize a curvilinear relationship to answer this question. They argued that

strategic changes are beneficial at first but will become detrimental to the firm performance from

a threshold onward. Their empirical analysis, however, did not support this argument.

Mixed-Methods Approach

The theoretical and empirical inconsistencies indicate that more contingency thinking with

respect to GM successions may be needed (Finkelstein, Hambrick, & Cannella, 2009). Given the

inherent links between the acceleration–deceleration debate with the adaptation–disruption

debate, I investigate these two theoretical inconsistencies simultaneously. However, considering

the current theoretical puzzles, coupled with the complex context of this study, a narrow

methodological approach might only reveal a small slice of the reality. I thus utilize a mixed-

methods approach (Hurmerinta-Peltomäki & Nummela, 2006; Watkins & Gioia, 2015). First, I

formulate a preliminary analytical framework based on the foregoing succession theories. I then

collect qualitative data through interviews, and constantly go back and forth between theory and

data to explore which theories can better explain the succession phenomenon in the setting of

foreign subsidiaries. The goal in this stage of research is to strike a balance between rigor,

creativity, and open-mindedness (Eisenhardt & Graebner, 2007). Through systematic combining

and progressive focusing (Dubois & Gadde, 2002; Sinkovics & Alfoldi, 2012), the initial

qualitative inquiry reveals that the antecedents as well as consequences of GM successions

within foreign subsidiaries hinge on the evolution of the MNEs’ knowledge about successions

and the combination of the knowledge brought into the subsidiary by GM predecessors and

successors. In the second stage of the investigation, therefore, I ground the study in an

evolutionary perspective (Kogut & Zander, 1993) and use quantitative hypothesis testing to

better inform the subsidiary GM successions. I introduce the qualitative research first.

STAGE 1: EXPLORATORY STUDY AND QUALITATIVE FINDINGS

Methods

Within IB, while a sizeable body of literature on international human resource management

in subsidiaries of MNEs exists in general (Delios & Björkman, 2000; Fang, Jiang, Makino, &

Beamish, 2010; Gaur, Delios, & Singh, 2007; Gong, 2003; Tarique, Schuler, & Gong, 2006),

little nuanced theoretical attention has been paid to subsidiary GM successions (for exceptions,

see Bebenroth & Froese, 2019; Selmer & de Leon, 1997; Selmer & Luk, 1995; Sonkova, 2015). I

thus first ground this study in emprical observations in the setting of foreign subsidairies.

From a reflexivity perspective (Bansal & Corley, 2011; Van de Ven, 2007), it should be

noted that I used to be a foreign subsidiary GM. I therefore developed the preliminary interview

outline not only based on the extant literatures, but also on my personal experiences. Mentioning

this is important, as I believe that, though grounded in extant theory, what I will observe is also a

function of who I am and what I hope to see (Suddaby, 2006). I conducted 37 formal interviews

(and eight follow-on interviews) with members of the top management team of foreign

subsidiaries and their MNEs. Given my previous subsidiary GM experiences, I intentionally

remained less predetermined during all the interviews in order to come across the “active” data

which is associated with discovery (Dubois & Gadde, 2002). My informants are regional CEOs

that are supervising the subsidiary, subsidiary general manager successors, and other members of

the top management team who witnessed the succession process. Similar to prior research (e.g.,

Gilbert, 2005; Schotter & Beamish, 2011b), the rationale to involve multiple informants

(whenever possible) is to triangulate the data (Dubois & Gadde, 2002; Flick, 2014).

To gain access to the MNEs, I relied on my personal network of professionals working in

these MNEs. Due to the COVID-19 pandemic, I was not able to conduct close-up field

observations or to participate in management meetings on site. The main data source was semi-

structured interviews, which are deemed suitable for interviewing managers who cannot be

reached on many separate occasions (Bernard, 2000). The interview format is based on the

foregoing interview outline, in which I have an open-ended sequence of questions. I promised

confidentiality to motivate informants’ accuracy and used the secondary sources such as annual

reports, published cases, media reports, and subsidiary GM resumes from LinkedIn to cross-

check information. I prepared the detailed interview notes after each interview following the “24-

hour rule” (Eisenhardt, 1989). These notes, summarizing the interviews in a logical manner, can

help me to bring the raw data into a manageable form. The length of each note was three to five

pages. I also video- or audio-recorded most of the interviews, the length of which was 30 to 150

minutes. In order to preserve the specificity and meanings, I followed the approach of Caprar

(2011) and transcribed all recorded interviews in the original language with no immediate

translation. In total, I have over 650 pages of transcriptions, of which around one third are

transcribed in English. In addition, I have over 140 pages of notes, which were taken in English.

My theorizing is an example of “disciplined imagination” (Gehman et al., 2018). Before

the field work, I tentatively formulated a set of propositions based on both my emic views on

subsidiary GM successions and the deductive reasoning based on extant literature. However, as

the qualitative exploration unfolded, my research questions were refined and I developed a new

set of formally stated observations that were empirically grounded. Along with the continuous

modifying and updating processes, my direction for data collection also evolved accordingly

(Dubois & Gadde, 2002). Table 2 describes these data sources.

Table 2: Summary of the Interviews Conducted and Respondent Characteristics

Respondent Type

Number of

Interviews

Number of

Respondent

Nationalities

Number of

Industries

Mean Interview

Length (Minutes)

Directors

3(1)

Regional CEOs

6(1)

Subsidiary GMs

9(2)

HR Managers

Sales Managers

4(2)

CFOs

2(1)

PR Managers

3(1)

Other functions

Global Leadership Experts

Note: The follow-on interviews are shown in parentheses.

Next, I present these observations, which reveal the inherent links among the extant

literatures. Table 3 provides selective qualitative evidence from the field according to five

themes. I then elaborate each theme respectively.

Table 3: Qualitative Evidence from the Field

Theme

Host

Country

Home

Country

Representative Quotes

Succession is a

learning process

China

The US

HR manager 1: "No MNEs think that it is easy to find an

appropriate GM for their subsidiaries."

Asia

China

Regional CEO 4: "At the beginning, changing GMs is very

difficult. We have very limited experience in doing so, and

often times changing a GM will bring about many other

complex issues."

Asia

Israel

Regional CEO 2: "The succession success ratio is only

50%...I trust my own feelings…every succession is

unique."

APEC

Israel

Regional CEO 6: "I chose many wrong candidates

before…My succession knowledge is improving."

China

Singapore

PR manager 1: "Our president definitely thought about the

succession lessons and adjusted his succession strategies

over time."

Succession is a

routinized

practice

China

South

Korea

Sales manager 2: "They changed GMs very frequently.

One-year tenure, a KPI review, and then a succession if

performance is suboptimal."

China

The US

Sales manager 3: "Expatriate GMs normally have a pre-

specified length of stay abroad, for example three

years…So succession occurs when the assignment is due."

Asia

China

Regional CEO 4: "Changing GMs now becomes a quite

routinized process…We purposefully prepared a pool of

internal GM candidates."

Europe

China

Regional CEO 3: "We have a very close cooperation with

executive recruiting companies in the local labor

market...We have a systematic talent training and

development system to prepare the GM candidate

internally."

General

The US

Subsidiary GM 8: "Every year, the HR Global and the

HQs management will evaluate the performance of

succession management by assessing the quality of the

successor candidate and also the motivation of the

candidate to be the subsidiary head in the future...the

succession will occur smoothly."

The nationality of

subsidiary GM

successors matters

to MNEs

China

The US

HR manager 1: "Our MNE managers prefer to use

Americans, who understand the culture in the local market.

They only localize their subsidiary gradually after 2-3

years."

China

Israel

Regional CEO 1: "Before 2008, all GMs were from Israel.

After 2008, all GMs in China were Chinese."

Asia

China

Regional CEO 4: At the outset, we used HCN

GMs…because many PCN managers lacked the

management skills then…Now, all GMs are PCNs.

China

Singapore

PR manager 1: "The two most recent GMs are local, as we

gradually realized the value of using local managers in

business development."

China

The US

Sales manager 3: "Our MNE expatriated GM to lead the

company. But gradually, they started to use local GMs...

The reason for the change is that from the outset, we were

very strong in terms of product and technology...So in the

first period of time, internal control was way more

important ...And localization only gained little attention

then. However, as time went by, Chinese companies began

to catch up. The competition in China became cut-throat. "

China

Singapore

PR manager 3: "We don’t use foreigners now. Only at the

outset, we sent some foreigners from the HQs to establish

and stabilize the operation first, and then they went back to

the HQs once the operation was stabilized."

Successions can

influence

subsidiary

performance and

survival

China

South

Korea

Sales manager 1: "Changing subsidiary GMs too quickly

does not help. It may even worsen the problem. Now, the

subsidiary has shrunken a lot. The more often they change

managers, the worse the business becomes."

China

Finland

Service manager 1: "The performance was not very good,

and the GMs’ tenures were too short for them to learn how

to do business in China."

Pakistan

China

Regional CEO 4: "After the first succession…the sales

turnover increased three-fold ...and became

profitable…After the second succession…ten-fold."

China

Israel

Subsidiary GM 3:"My return to Israel accelerated the

whole subsidiary exit process."

The UK

China

Deputy GM 1: "The incumbent subsidiary GM took office

2 years ago, the performance got better now."

China

South

Korea

Sales manager 2: "While poor performance led to the

change of the GM, the new GM made the performance

even worse, and eventually led to the exit of the

subsidiary."

The tenure of the

subsidiary GM

can be both

beneficial and

detrimental.

China

South

Korea

Sales manager 1: "Often times, the manager knows what is

going on and where the problem is, but they don’t have

time to fix the problem. It is a failure trap."

China

Finland

Service manager 1: "At least 5 years tenure is needed for

the GM to really understand how to do business in this

specific context."

China

South

Korea

Sales manager 2: "They gave the general managers too

little time to turn around the performance of the

subsidiary."

China

Israel

Regional CEO 2: "As time went by, the GM also became

difficult to change."

China

Sales manager 4: "At the beginning the trust was

good...The relationship with the HQs deteriorated in the

past two years. The GM is building her empire now."

China

Israel

Deputy GM 2: "The GM stayed in China for too long…He

really lost his passion in the market."

China

Switzerland

Expert 1: "Long tenures would lead to fraud issues."

Notes: the full list of quotes is available upon request.

Subsidiary GM Successions as a Learning Process

Managerial successions will occur in the history of about every organization (Haveman,

1993). I therefore was not surprised that most respondents in this study have experienced or

witnessed the change of the subsidiary GMs. However, the data confirm that many MNE

decision makers still do not know where to find the best subsidiary GM successor candidates

(Collings, Scullion, & Morley, 2007). Some informants told me that they learned how to manage

subsidiary GM successions in a trial and error manner. When experience is limited, MNE

decision makers rely more on their own feelings, and are concerned about complex issues

associated with the successions. For these MNEs, successions are goal-based behaviors in the

sense that different attempts are made to reach the goal (Rasmussen, 1983).

Subsidiary GM Successions as Routines

Concurrently, however, the data also indicate a contrasting view where subsidiary GM

successions can be best described as “routines” (Ocasio, 1999). In these observations, the change

of subsidiary GMs seems to occur often, easily, and smoothly. One subsidiary has even changed

GMs 17 times in the past 20 years. Successions may also take place for various reasons, such as

when a new assignment is due, the performance is poor, or the GM did not follow the code of

conduct. Some successions even occurred because the subsidiary GMs could not meet the

expectations of the MNE managers, though they did turn around the subsidiary performance.

Successions in these MNEs are rule-based in a sense that they are controlled by a set of stored

rules. As noted by Rasmussen (1983), this kind of human activity will be more likely to occur in

a familiar environment while goal-based behaviors are more likely to be observed in unfamiliar

situations. In combination, therefore, the data sensitize me to maturity effects in social systems

where time as a context can prompt nonlinear effects (Johns, 2006).

Nationality of Subsidiary GM Successors

My data suggest that GM nationality is a crucial aspect of the subsidiary GM succession

decision making (Bebenroth & Froese, 2020). The informants see the value in the PCN’s

knowledge about the MNE and products, and the value in the HCN’s local knowledge, but they

do not evaluate the efficacy of each succession event in isolation. Rather, MNE decision makers

also look at the sequencing logics underlying the continual change. In general, these MNEs are

following several specific patterns. There are subsidiaries which never change the staffing

strategies; gradual integrators which use an HCN GM first but change to PCN GMs gradually;

and gradual localizers which employ a PCN GM initially but change to HCN GMs in the later

stage. The implication of these patterns is that effective succession decision making needs to take

into account the path-dependent nature of successions.

Successions and Subsidiary Performance

The data reveal that GM successions will not only greatly influence subsidiary

performance, but also the survival of the subsidiary. The nature of the effect, however, can be

both adaptive and negative. While some informants viewed the continual GM change as a failure

trap, or experienced the closure of the subsidiary after many successions, there are also some

succession-adaptation cases in the data. For example, one subsidiary GM successor not only

increased the sales volume three-fold relative to that of his predecessor, he even managed to

enhance the company’s profitability during the pandemic. However, the succession-adaptation

link was not salient at the outset, as he spent the first one and half years of his tenure getting

familiar with the subsidiary and the business environment.

Tenure of Subsidiary GM Successors

The maximum validity of work permits or intra-company transfer visa seems to play a less

important role here, as many PCN GMs’ tenure in my sample can reach to over 10 years. There

are also localized expatriates (Tharenou & Harvey, 2006). But as shown in Table 2, the interview

data include contrasting views on the effect of the subsidiary GM successor’s tenure. Some

informants believe that the subsidiary GM successor should be given enough time to learn. For

them, patience is a virtue (Levitt & March, 1988). But others emphasized the negative impact of

a long tenure, such as inertia, fraud, and loss of passion. Meanwhile, one subsidiary GM told us:

“No matter how long you have been there, you are still a foreigner”, implying the upper bond of

the knowledge acquisition.

In sum, what emerged out of my interview data are two overarching themes: the

knowledge about successions; and the knowledge held by the subsidiary GM predecessors and

successors. Both are path-dependent and evolve over time. To systematically investigate the

inherent links between the foregoing coexisting logics, therefore, I adopt a knowledge-based

view of the MNE. Next, I move to the second stage of the study and ground my work in an IB

theory that informs knowledge transfer and creation.

STAGE 2: EVOLUTIONARY THEORY AND HYPOTHESIS DEVELOPMENT

Evolutionary Theory

The evolutionary theory of the MNE (Kogut & Zander, 1993) is rooted in the behavioral

theory of the firm (Kano & Verbeke, 2019; Verbeke, 2003), sharing the same bounded-

rationality behavioral assumption with the extant succession theories. In this tradition, MNEs are

viewed as a value maximizing social community that serves as an efficient mechanism for

knowledge creation, internal transfer, and recombination. This core theoretical underpinning

suggests that there is a potential to adapt the deceleration model as well as the succession–

adaptation model into the MNE contexts, because the knowledge creation aspect implies the

possibility of routine refinement.

However, the knowledge transfer aspect in this line of inquiry seems to suggest the

opposite. Routinization through knowledge codification can lead to a repetitive momentum such

that internal knowledge transfers will encourage more internal knowledge transfers (e.g., Kogut

& Zander, 2003). But often times the knowledge transferred to the host country has been found

to be inappropriate (Zander & Kogut, 1995). In effect, suboptimal knowledge transfer persists in

many organizational practices (Kogut & Zander, 1996). As the value of such repetitive

momentum primarily lies in the economizing on bounded rationality, the inertial qualities of

routines (Nelson & Winter, 1982) are prevalent in this tradition. I extend this theoretical framing

by arguing that prior knowledge, once translated into routines, can not only facilitate knowledge

transfer across subsidiaries within an MNE, but can also facilitate future knowledge application

within the subsidiary. Thus, if developing routines can mitigate bounded rationality problems in

a spatial sense (Kano & Verbeke, 2019), I may presumably see the same effect of routines in a

temporal sense. This implies that the logic of evolutionary theory can also incorporate the

acceleration model as well as the succession–disruption model.

Meanwhile, it is important to note that the development of a path, along which routine is

emerging, is embedded and connected with other developments (Sydow et al., 2009). Therefore,

after exploring the knowledge creation and transfer activities that influence the forgoing

momentum of successions, I will look at the knowledge recombination possibilities that GM

successions can detail. Specifically, I consider the knowledge carried by GM predecessors and

successors, an organic recombination of which will have strategic value. Through the knowledge

recombination, MNEs evolve (Kogut & Zander, 1996). Indeed, the value of the existing

knowledge base in the MNE can be enhanced by recombining it with location-specific factors in

the host country (Verbeke, 2003). However, as I argue, there is also a sequencing logic

underlying the recombination, which is crucial but remains unexplored.

The Number of Subsidiary GM Successions and Subsequent GM succession

Beechler et al. (1998) pointed out that one of the most important decisions an MNE’s

decision makers can make is in the selection of subsidiary GMs. Indeed, the role of subsidiary

GMs appears to be more intricate and challenging than the role of managers in a domestic setting

(Bartlett & Beamish, 2018). O’Brien et al. (2019) note that there are at least three types of

responsibilities that subsidiary GMs must assume: enabling embeddedness in the host country,

facilitating adaptability in the subsidiary, and championing alternatives within the MNE. In sum,

subsidiary GMs are at the forefront of many international management challenges (Meyer et al.,

2020).

Therefore, the strategic importance of and challenges imposed on the GM role may also

render GM succession a difficult task to manage. But if the management of MNEs can correctly

draw lessons from past succession experiences in the focal subsidiary, they will be better able to

maintain or modify search and attention rules, and refine aspirations about the availability of

human capital and the needed capabilities of the candidates (Beck et al., 2008). As a result, the

management of MNEs would be better able to find a GM whose skills would be a satisfactory

match with the needs of the subsidiary. Thus, the need to change subsidiary GMs again declines.

In this regard, continual subsidiary GM change can usefully be viewed as a knowledge creation

process (Balogun & Jenkins, 2003; Feldman, 2000) or, in Greve’s (2013) terms, a “feedback

strategy” in that it extends current actions when they are associated with success and looks for

other solutions when the outcomes are unsuccessful.

As already pointed out, to enable the refinement of succession routines requires an

environment where information is rich and available, and feedback is prompt and non-random.

Given that the environments facing MNEs are complex (Cooke et al., 2019; Kostova, Roth, &

Dacin, 2008) and the relationships between an MNE and its subsidiaries are characterized by

separation through time, space, culture, and language (Ambos & Ambos, 2009), it follows that

bounded-rational senior MNE managers will not be able to always attend to all GM changes in

their subsidiaries. When there are no succession routines specific to that subsidiary in place yet,

senior MNE managers might have to pay more attention to the choice of the subsidiary GM. In

this stage, new routines are selected and carried out in a trial and error manner until a good

enough solution is found (Rerup & Feldman, 2011). The new routine creation process can be

viewed as a form of higher-level learning (Saka-Helmhout, 2010) because new beginnings are

powerful incentives to establish or change the way work is accomplished (Feldman, 2000), and

because in the beginning the path formation process is flexible (Sydow et al., 2009). When senior

MNE managers attend to the details of the situation, the performative aspect of routines will

prevail (Feldman & Pentland, 2003). Thus, I argue that MNE managers are more likely to

materially refine succession routines based on the first few successions, which in turn will

decelerate the momentum for further subsidiary GM succession events.

But there are also contexts that enhance self-reinforcing dynamics (Sydow et al., 2009).

For instance, if the means-end relationships are ambiguous or the senior MNE managers only

pay limited attention to such relationships, correctly drawing lessons from past succession

activities will be challenging. I argue that this may occur when MNE managers gradually encode

the subsidiary GM succession practices over time into processes and documents of succession

planning and implementation by succession staff (Friedman, 2017) or a standing board

committee (Dimma, 1999), as a means of economizing on the bounded rationality and costs of

change. The routinization may also result in the concrete performance goals of GMs in a specific

subsidiary (Tahvanainen, 2000). The codified processes, goals, documents and other artifacts can

then bring about an overarching action pattern, or in Feldman and Pentland’s (2003) term, “an

ostensive form of routines” to guide future subsidiary GM change. From then on, it can be

argued that a lower-level learning (Saka-Helmhout, 2010) will tend to prevail, where routines

will render the GM change easier (Ocasio, 1999).

Indeed, routinization can increase the competence in making specific kinds of changes,

which in turn reduce the marginal costs of making these changes (Amburgey et al., 1993). Chung

and Beamish (2010) argued that the reduction in marginal costs will result in two things. First, it

will make changes with fewer benefits more attractive. Second, it will increase the likelihood

that further, similar changes will be repeatedly enacted. But routinization as such has an inherent

problem. That is, tacit knowledge is context specific (Balogun & Jenkins, 2003) and some of it is

not amenable to systematic codification (Forsgren, 2017; Kogut & Zander, 1992). Thus, the

established succession routines may become less likely to accommodate the current situations.

Instead, self-reinforcing dynamics may lead to increasing simplicity (Sydow et al., 2009). As a

consequence, changing a subsidiary GM may ultimately become an easier decision to make, but

at the same time a less effective means of realigning the subsidiary with the environment and the

MNE. As unsuccessful changes can lead to failure traps, in which failure leads to change, which

leads to failure, which leads to change again (Levinthal & March, 1993), it follows that an

accelerated pace of change may ultimately arise. Based on the “within-theorization” (Haans,

Pieters, & He, 2016), I thus hypothesize:

Hypothesis 1: The number of GM successions in the foreign subsidiary shows a curvilinear

association (U-shape) with the likelihood of subsequent GM succession.

The Number of Subsidiary GM Successions and Subsidiary Performance

Along with the change of the role of succession routines, I expect the consequences of

succession activities may also change from functional, implied by the deceleration model, to

dysfunctional, implied by the acceleration model. Specifically, I argue that GM successions can

improve subsidiary performance when the number of GM successions is kept low, as they allow

the MNE to find the appropriate candidate to improve the subsidiary’s adaptability over time.

Moreover, the decelerated momentum for further change can also offer the new GM the

opportunity to incrementally learn suitable ways to “do things here” (Rowe et al., 2005).

Therefore, reducing the number of changes is “often an aid to comprehension” (Levitt & March,

1988) not only to the senior MNE managers who make succession decisions but also to the

newly appointed subsidiary GM who needs time to learn in order to achieve strategic renewal.

This is critical because knowledge dispersion, as a basic attribute of MNEs (Tippmann, Scott, &

Mangematin, 2012), may render the time compression diseconomies a much more serious

problem to managers in MNEs than to managers in a domestic setting.

In contrast, too many GM successions can lead to failure traps as previously mentioned. It

may accelerate the momentum for further change, which then indicates that the time between

changes will become increasingly short for GMs to process information (Hale, Ployhart, &

Shepherd, 2016; Kunisch, Bartunek, Mueller, & Huy, 2017). As a result, information overload

and ineffective decision making may ensue (Klarner & Raisch, 2013). Moreover, given paucity

of time, it is likely that there exists information asymmetry between the firm and the candidate,

which may further lead to a less-than-optimal selection (Zhang, 2008). Consequently, using such

a candidate might be detrimental to the adaptability of the organization. Taken together, I thus

follow Klarner and Raisch (2013) to conceptualize a curvilinear relationship such that continual

subsidiary GM change is beneficial at first but will become detrimental to the subsidiary

performance from a threshold onward. Formally,

Hypothesis 2: The number of GM successions in the foreign subsidiary will have a

curvilinear association (inverted U-shape) with the subsidiary performance.

The Number of Subsidiary GM Successions and Subsidiary Survival

As it takes time to transfer learning from individuals to the organization (Crossan, Lane, &

White, 1999), too many GM succession events may render effective actions initiated by new

subsidiary GMs difficult to integrate and institutionalize as formal rules, procedures or routines.

Consequently, the larger part of the firm may remain the same while CEO changes become more

frequent (Elosge, Oesterle, Stein, & Hattula, 2018). More importantly, too many changes can

cause a flux in coordination (Hale et al., 2016). Here, I define flux as “an unstable, unbalanced,

or changing pattern of interaction in a collective” (Summers, Humphrey, & Ferris, 2012: 315).

The flux may take the form of short-term shocks which, through the creation of new routines,

can decline over time. But forming new routines can be costly and time-consuming (Klarner &

Raisch, 2013). Therefore, given too many GM changes, the short-term shocks that arise from

each implementation of GM succession will be less likely to decline. Following the logic of

Chung and Beamish (2010), one possible consequence is that these short-term shocks will

accumulate and ultimately translate into higher likelihood of foreign subsidiary exit. Thus:

Hypothesis 3: The more frequently GM successions have occurred in the foreign

subsidiary, the higher the likelihood of subsidiary exit.

The Pattern of Subsidiary GM Successions and Subsidiary Survival

Tarique et al. (2006) argue that PCNs may know more about the MNE’s culture, and

thereby can more effectively facilitate communication with the headquarters and align the

subsidiary’s operations with the interests of MNE headquarters. They are “value-seeking”

connectors, distilling core knowledge to the subsidiary (Hébert et al., 2005). In contrast, HCNs

are viewed as being more familiar with the host-country environment, and hence more effective

in localizing the subsidiary’s operations (Gupta & Govindarajan, 1991). Based on these insights,

I would anticipate that continued deployment of PCN GMs can facilitate knowledge transfer to

the focal subsidiary, and strengthen knowledge exploitation. Yet it may discount the advantage

of localization over time (Bebenroth & Froese, 2020). Continued deployment of HCN GMs, on

the other hand, can help the subsidiary to localize the operation, but it may limit the subsidiary’s

capability to fully exploit the MNEs’ firm specific advantages (FSAs).

Thus, to capture the upside potential of each staffing strategy, MNEs may design their

succession strategies along two distinct trajectories: gradual localization or gradual integration,

as I observed. This is in line with evolutionary theory, which highlights that the knowledge

transfer process within an MNE is itself a learning process in which the MNE’s existing

knowledge base is combined with (host country) location specific factors, as one illustration of

MNE’s combinative capability (Verbeke, 2003). Although some non-location bound (i.e., can be

exploited globally) FSAs can be transferred to the host country market by PCN GMs, without

accessing complementary resources in the host country or without country specific advantages

(CSAs), it is less likely that FSA exploitation leads to superior performance (Rugman, Verbeke,

& Nguyen, 2011). I argue that although both paths appear to be capable of realizing the

knowledge recombination goal, they are not equifinal. There are several reasons for this.

Because the history of a firm’s strategic moves will affect the operational effectiveness of

their subsequent moves (Tan & Mahoney, 2005), I anticipate that the initial conditions

established by the PCN GM at subsidiary founding can work as a blueprint that guides

subsequent actions. Collectively these factors constitute, in Bartlett and Ghoshal’s (1987) terms,

the subsidiary’s administrative heritage. As such, my argument parallels research on the

dynamics of expatriate deployment (Riaz et al., 2014), which suggests that a higher proportion of

expatriates deployed at subsidiary founding can enable knowledge transfer, coordination, and

control between the subsidiary and the parent MNE (Belderbos & Heijltjes, 2005). The initial

personnel decisions will then “provide the trigger for the path-building process by developing an

organization’s combination of resources and capabilities” (Riaz et al., 2014: 2). Thus, I concur

that deploying PCN GMs at subsidiary founding suggests a high level of administrative

capacities available for knowledge transfer, control, and coordination (Sekiguchi, Bebenroth, &

Li, 2011).

Administrative heritage can endure long after any structural change has been made and that

over time the employees in the subsidiary will become socialized to the point where PCN GM

control is less needed (Welch, 1994). Thus, I suggest that for gradual localizers, the close

coordination between the subsidiary and the MNE and between the subsidiary and its peers can

be sustained after the PCN GM’s departure. As a result, along with the improvement of the

subsidiary’s local embeddedness facilitated by the HCN GM successor, the MNE can still

leverage the administrative heritage built by the PCN predecessor to transfer knowledge, and

maintain coordination. This succession pattern, therefore, may allow the subsidiary to

simultaneously gain acceptance from the external environment in the local host country and

acceptance from the MNE, both of which are needed for subsidiary survival (Kostova & Zaheer,

1999). As this is an effective way to develop MNEs into a harmonious social community (Kogut

& Zander, 1996), I see gradual localization as a value maximization path.

I argue that this might not be the case with gradual integrators. Prior studies argued that

using HCN GMs at subsidiary founding may reduce the subsidiary’s risks in a new environment

(Delios & Björkman, 2000), thus offering a cost-minimization governance mechanism.

Accordingly, I view this succession pattern as a cost-minimization path. However, the critical

distinction made by the evolutionary perspective is that the primary competitive advantage an

MNE can bring to the host country is its possession of superior knowledge (Kogut & Zander,

2003). Here, value creation, not cost efficiency, is the core element (Forsgren, 2017). Employing

an HCN GM at subsidiary founding, however, will be less likely to enable the subsidiary to fully

take advantage of the MNE’s superior knowledge during the HCN GM’s tenure. Moreover, there

are also enduring problems after the HCN GM’s departure, as PCN successors who replace a

HCN GM may encounter subtle and overt resistance by middle and lower HCN managers of the

subsidiary (Bebenroth & Froese, 2020). The rationale is that the “glass-ceiling” may reduce

morale and commitment among these managers (Hitotsuyanagi-Hansel, Froese, & Pak, 2016),

leading to identity-based discordance (Kano & Verbeke, 2019). For gradual integrators, I thereby

argue that the dynamic adjustment costs, incurred when hiring a new manager will disrupt

current operations (Tan & Mahoney, 2005), to a greater extent than other patterns of succession.

This will potentially temper the knowledge transfer benefit that the PCN successors can bring to

the subsidiary. I thus hypothesize:

Hypothesis 4: The exit likelihood of gradual localizers is lower than that of subsidiaries

that only deploy PCN GMs or only use HCN GMs.

QUANTITATIVE HYPOTHESIS TESTING

Data

I use the Toyo Keizai NEEDS Merged Database (1991–2013) to quantitively test my

hypotheses. Toyo Keizai’s overseas Japanese companies’ database is the largest database in

Japan about Japanese companies’ overseas expansion. It is based on an annual questionnaire

survey that Toyo Keizai has carried out for 40 years. Meanwhile, the Nikkei Economic

Electronic Databank System (NEEDS) offers over 50 years of financial and operating data on

Japanese parent firms. Hundreds of prior studies have been published using this database (e.g.,

Shin, Hasse, & Schotter, 2017). To ensure the panel data’s consistency, I restrict my attention to

foreign subsidiaries in which there is no change in parent firm and have only one Japanese parent

throughout their development. I do so in order to maintain the consistency of data and to control

for influence due to conflicts within Japanese parent firms. Consistent with FASB protocols, I

define a foreign subsidiary as a firm in which the Japanese parent has at least a 20 percent

ownership stake.

Some of the subsidiaries were started 10 to 15 (or even more) years ago in the host

countries before they were first recorded in the dataset. Obviously, in those subsidiaries I cannot

examine the full process of continual GM change because I have no data about the subsidiaries’

initial development stage. To ensure this study identifies the full process of MNE evolution

(starting from the first possible GM change), I exclude subsidiaries that had already operated for

more than two years in the host countries when they were first recorded in the dataset.

Further, I exclude subsidiaries that have never had more than nine employees to ensure the

database does not include small representative offices or agencies. Ensuring the database does

not include small representative offices or agencies has become a common practice for IB

researchers leveraging this specific dataset (Beamish & Inkpen, 1998; Chakravarty, Hsieh,

Schotter, & Beamish, 2017; Shin et al., 2017). In total, the treatments resulted in a dataset of

1,945 subsidiaries with 7,866 yearly observations.

Variables

Dependent variable. The data-set contains information on the names of subsidiary GMs.

Therefore, for the succession antecedent model, I can use the same method as Beck et al. (2008)

to trace the managerial succession events at each observation. I use a binary variable,

Successions, to denote the change in subsidiary GMs; 1 refers to the observation that a subsidiary

GM succession occurs, and 0 means otherwise. Samples at the end of the observation period are

viewed as censored data.

With respect to the consequences of subsidiary GM successions, in the Toyo Keizai

database, there is a categorical variable representing the annual assessment of the subsidiary’s

financial performance, which is argued to be an appropriate measure (Delios & Beamish, 2001;

Isobe, Makino, & Montgomery, 2000). As the measure has ordinal but not ratio-scaled properties

(Dhanaraj, 2000), I recode this profit measure into a binary variable termed Profitability, where 1

is high performance, and 0 means otherwise.

Consistent with previous research (Delios & Beamish, 2001), a subsidiary that ceased to

appear in a particular year’s directory after being listed continuously for years, is regarded as an

exit from the market. I use a dummy variable Exit to refer to a subsidiary’s cessation of

operation. Following Lu and Xu (2006), 0 is a subsidiary that remains in the market in a year,

and 1 is a subsidiary that exits in that year. Subsidiaries that are listed at the end of the

observation period are viewed as censored data. Toyo Keizai dataset also contains the address

information of the subsidiaries. While I have subsidiaries that moved to different locations, the

address change of the subsidiaries will not change the ID code of the subsidiaries. Thus, I do not

code the observations as exit if the subsidiaries only changed the address. Meanwhile, in my

coding process, I make sure that the observations coded as exit are not from those subsidiaries

that ceased to appear but then reappeared in the dataset.

Independent variables. Prior Change denotes a subsidiary’s total number of managerial

succession events up to the observation year. I use 0 to denote an observation that has never

changed their GM, 1 for an observation where only one subsidiary GM in previous years is not

the same as the incumbent, 2 for a subsidiary where the GM successions have occurred twice,

and so forth. I use the quadratic term of Prior Change to account for the non-linear effects of

prior succession events on subsequent GM change and subsidiary performance.

I use the subsidiary GM’s name to check for PCN identification (Bebenroth & Froese,

2020). Following prior studies (Bebenroth & Froese, 2020; Schotter & Beamish, 2011b), I use

the classification as non-PCN to measure HCNs because Japanese companies use very few TCNs

(0.5%) in their foreign subsidiaries (Tungli & Peiperl, 2009). On this basis, I create a categorical

variable Succession Patterns to measure the patterns of subsidiary GM changes: Unchanged are

subsidiaries that keep employing HCN GMs or only staff PCN GMs; Gradual Integrators use an

HCN GM at subsidiary founding, but change to PCN GMs gradually; and Gradual Localizers

employ a PCN GM at subsidiary founding, but change to HCN GMs in the later stage. As this

variable is time-invariant, it is only analyzed in the survival model. To make sure that the

survival model estimates the change dynamics, all observations in this particular model have

experienced at least one succession event.

Control variables in the succession antecedent model. First, following Beck et al. (2008),

Tenure is the logarithm of the total number of years the subsidiary GM has been in office. Once

a subsidiary appoints a new GM, it resets the tenure clock.

Second, as larger organizations may experience more succession occasions than smaller

firms (Kesner & Sebora, 1994), I control for Subsidiary Size, which corresponds to the number

of subsidiary employees. As log-transformation cannot be applied to zero values, I take the

square root of this variable to reduce right skewness. I also control for the MNE Size. It is the

logarithm of the total number of MNE employees.

Third, I control for the logarithm of Subsidiary Age, because older organizations might be

less likely to engage in change (Mitsuhashi & Greve, 2004). I then use the quadratic term of

Subsidiary Age to control for the non-linear effects of firm age on GM change. This is because at

the start of a new organization, there is a fair degree of good will, resulting in a honeymoon

period. During this period of time, the relationship can be relatively shielded from negative

outcomes (Fichman & Levinthal, 1991).

Fourth, following Beck et al. (2008), I control for the performance of the subsidiary, as

poor performance will likely lead to the change of GMs (Boeker, 1992; Kesner & Sebora, 1994).

Also, because Frazee (1998) argued that with a local partner one may have a better chance of

making the right GM choice in the beginning, I control for the ownership structure of the

subsidiary. Entry Mode is a categorical variable denoting a firm’s mode of entry. I use 1 to

denote a wholly owned subsidiary (WOS), 2 as an MNE Majority Owned IJV, 3 as an Equally

Owned IJV, and 4 as a Minority Owned IJV.

To further account for the effect of host-country attractiveness (Blumentritt & Nigh, 2002)

on the likelihood of subsidiary GM turnover, I utilize GDP Growth data from World Bank

National Accounts data and OECD National Accounts data files (World Bank, 2019). For the

same reason, I use Unemployment Ratio data from the International Labour Organization’s

ILOSTAT database, Human Capital Index data from the Penn World Table (Feenstra, Inklaar, &

Timmer., 2015), and Tax Rate data from TaxFoundation.org (Farah, Elias, Chakravarty, &

Beamish, 2021).

I also account for the effect of competition in the host country on the likelihood of

subsidiary GM change. Competitors is a variable referring to the number of country-of-origin

competitors (with different parent firms) in the host country where the focal subsidiary operates.

These country-of-origin competitors share the same four-digit sector code with the focal

subsidiary. This study takes the square root of the number of country-of-origin competitors to

reduce right skewness. Relatedly, I also control for the inflow of foreign direct investment (FDI).

Based on the definition from the World Bank, FDI Inflow refers to direct investment equity

flows in the reporting country. It is the sum of equity capital, reinvestment of earnings, and other

capital, and is reported in current U.S. dollars.

Meanwhile, I use a variable called Expatriate Ratio to represent the expatriate ratio in the

focal subsidiary. This variable is used to control for the MNE’s ability to find a GM candidate

from within the subsidiary, which then potentially affect the probability of further GM change in

the focal subsidiary. Relatedly, I also control for the number of Sister Subsidiaries in the host

country. This is because when the MNE looks for a new subsidiary GM, it might be more willing

and able to first look at whether there are candidates within their sister subsidiaries. This variable

is the square root of the number of sister subsidiaries in the host country where the focal

subsidiary operates. Also, because many PCN GMs are expatriates (Harvey & Moeller, 2009),

who may have a pre-specified length of stay abroad (Takeuchi, Marinova, Lepak, & Liu, 2005), I

control for the effect of the PCN identification on the change of the incumbent GM.

I use a categorical variable called Strategic Motives, which is coded into a series of (16)

dummy variables, to account for the heterogeneous impact of FDI motives on the change

probability of subsidiary GMs. Relatedly, I use a binary variable, Regional HQs, to control for

the impact of being an RHQ on GM succession in the focal subsidiary.

Finally, I control for the period from Year 1991 to 2013. This variable is coded into a series

of dummy variables to partial out the influence of aggregate time series trends on subsidiary GM

succession.

Control variables in the succession consequence model. The following control variables

are used in the performance and survival models. I use Subsidiary Age to account for the effect

of subsidiary’s stage of development on its performance and survival probability (Josefy,

Harrison, Sirmon, & Carnes, 2017). Following Bouquet and Birkinshaw (2008), I use the

quadratic term of Subsidiary Age to account for the nonlinear effects of firm age on firm

performance and survival.

Meanwhile, I control for the Tenure of the subsidiary manager, as long-tenured CEOs are

found to be less likely to achieve the match between their organizations and the environment

(Miller, 1991). I also control for the effect of the GM’s PCN identification on subsidiary

performance. Because the pattern of subsidiary GM changes is the key independent variable in

the survival model, I do not control for the PCN identification in the survival model in order to

avoid Type 1 error (Kalnins, 2018).

Furthermore, consistent with prior research on subsidiary performance (e.g., Dhanaraj &

Beamish, 2004; Makino, Chan, Isobe, & Beamish, 2007), I control for the size of the subsidiary

and the MNE. Meanwhile, given the mode of entry may influence the stability and performance

of the subsidiary (Dhanaraj & Beamish, 2004; Murray, Ju, & Gao, 2012), I also control for Entry

Mode.

As RHQs are expected to perform HQs functions (Chakravarty et al., 2017), they may

receive more resources and support from the HQs. I therefore also account for the effect of being

an RHQ on subsidiary performance and survival. Relatedly, I control for Sister Subsidiaries in

the performance and survival models. I expect that the more sister subsidiaries operating in the

host country, the less likely the focal subsidiary will gain the needed resources and support from

the HQs. As a result, the performance of the focal subsidiary might be negatively influenced

(Ambos & Birkinshaw, 2010).

Following prior studies (e.g., Chung & Beamish, 2010; Farah et al., 2021), I account for

the macro-level host country variables such as the human resource development, the labor

market environment, and the economic environment by including Unemployment Ratio, GDP

Growth, Human Capital Index, and Tax Rate. Also, I account for the impact of host country

competitions by including FDI inflows and Competitors.

Finally, a series of Year dummy variables are used to partial out time-specific effects on

firm performance and survival, and a series of Strategic Motives to account for the impact of FDI

motives on firm performance and survival. The following descriptive statistics in Table 4 show

the characteristics of these variables.

Table 4: Descriptive Statistics

Mean

1.Successions

0.25

0.44

1.00

2.Profitability

0.58

0.49

0.00

1.00

3.Subsidiary Exit

0.06

0.23

n.aa

-0.05

1.00

4.Prior Change

1.20

1.48

0.08

0.11

0.02

1.00

5.Succession Patterns (1=unchanged 2=gradual

localizer, 3=gradual integrator)

1.34

0.66

0.05

-0.01

-0.03

0.16

1.00

6.Entry Mode (1=WOS, 2=majority owned IJV,

3=equally owned IJV, 4=minority owned IJV)

1.64

1.08

-0.04

0.01

0.04

-0.09

0.10

1.00

7.Expatriate Ratio (%)

0.13

0.18

0.02

-0.06

-0.04

-0.03

-0.08

-0.21

1.00

8.MNE Size (log)

7.82

2.38

0.04

0.09

0.04

0.19

0.07

0.05

-0.11

1.00

9.Subsidiary Size (sqrt)

9.47

10.20

0.02

0.10

0.00

0.11

0.02

0.06

-0.36

0.29

1.00

10.Tenure (log)

0.91

0.74

0.04

0.08

0.04

-0.15

-0.05

0.04

-0.12

-0.13

0.05

11.Subsidary Age (log)

1.91

0.70

0.07

0.20

0.05

0.64

0.09

-0.05

-0.16

0.07

0.18

12.Competitors (sqrt)

5.09

3.12

0.01

0.03

-0.02

0.03

-0.03

-0.07

-0.03

0.18

13.FDI Inflow (10 billion)

8.18

9.69

-0.01

0.03

0.11

-0.02

-0.13

0.05

-0.04

0.00

14.GDP Growth (%)

5.75

4.11

-0.01

0.01

-0.01

-0.11

-0.02

0.07

-0.13

-0.05

0.09

15.Human Capital Index

2.75

0.54

0.03

-0.02

0.03

0.19

0.04

-0.20

0.20

0.03

-0.16

16.Unemployment (%)

4.88

2.46

0.01

-0.05

0.02

0.01

0.03

-0.14

0.08

0.06

-0.11

17.PCN

0.78

0.41

0.06

-0.01

-0.04

0.09

-0.26

-0.41

0.20

-0.03

-0.02

18.Tax Rate (%)

29.57

7.20

-0.07

-0.13

0.02

-0.15

0.03

0.01

0.05

0.02

0.00

19.Regional HQs

0.04

0.19

0.03

-0.01

0.08

0.01

-0.09

0.19

0.14

-0.04

20.Sister Subsidiaries (sqrt)

1.35

0.66

0.06

0.01

0.06

0.07

0.06

0.14

-0.07

0.40

0.10

10.Tenure (log)

1.00

11.Subsidary Age (log)

0.44

1.00

12.Competitors (sqrt)

0.06

1.00

13.FDI Inflow (10 billion)

0.08

0.14

0.45

1.00

14.GDP Growth (%)

-0.02

-0.14

0.37

0.20

1.00

15.Human Capital Index

0.05

0.23

-0.16

0.14

-0.57

1.00

16.Unemployment (%)

-0.01

0.01

-0.19

0.01

-0.33

0.36

1.00

17.PCN

-0.08

0.02

0.10

0.06

0.03

-0.03

-0.05

1.00

18.Tax Rate (%)

-0.07

-0.17

-0.03

0.04

-0.15

0.21

0.33

-0.05

1.00

19.Regional HQs

-0.04

0.02

0.00

0.07

-0.05

0.11

0.04

0.05

0.03

1.00

20.Sister Subsidiaries (sqrt)

-0.09

-0.03

0.19

0.21

0.17

-0.08

-0.04

0.08

0.05

1.00

Notes: a. When an observation exits, GM Change is viewed as censored data. Therefore, no correlation between Successions and Exit is calculated; b. Year Dummies and Strategic

Motive Dummies are not included in Table 4

Model

In line with Beck et al. (2008), I do not assume that recurrence times within each

subsidiary are independent. To control for firm heterogeneity in the propensity to change (Haans

et al., 2016), this essay employs the following fixed-effects logit regression to explore the

antecedents of subsidiary GM succession (Allison, 2009):

(

$!" = 1'|')!",+,,!

)

1+/#$!"%#&!'''''with'''''''''$!" = 1[)!"+ +,!+5!" > 0]

where

denotes a subsidiary and

denotes time,

;!"

is a change of subsidiary GM at each

observation,

)!"

refers to the vector of independent variables and control variables, and

represents the coefficients associated with these variables. In the fixed effects model, the errors

5!"

are assumed to be exogenous to all independent variables, whereas

is the time-invariant

unobserved firm-specific variance (i.e., incidental parameter) that is assumed to be correlated to

the independent variables. As I condition the density of

;!"

∑";!"

(which is a sufficient

statistic for the fixed effects) to derive the objective function of the estimator, I can eliminate the

incidental parameters, thus yielding consistent estimators (Chamberlain, 1980).

Also, to control for the unobserved firm-specific variance in order to get consistent

estimators, this study employs fixed-effects logit regression to explore the performance

consequences of continual subsidiary GM change. Finally, with respect to the relationship

between subsidiary survival and subsidiary GM succession, as the predictors were recorded

annually, I can only assess exit on an annual basis. Therefore, continuous-time Cox models are

not applicable. Furthermore, I cannot use the foregoing fixed-effects model due to the “complete

separation” issue (Allison, 2009: 81). To calculate the continuous-time hazard rate, I apply a

discrete-time event history model (Stern, Dukerich, & Zajac, 2014). Such model uses a

complementary log-log function, which will allow me to account for both the continuous nature

of actual exit processes and the discrete nature of the data (Allison, 1995). In this model, I cluster

the standard errors at the subsidiary level and use robust variances to address heteroscedasticity.

RESULTS AND ROBUSTNESS CHECK

Table 5: Empirical Results for Hypothesis 1

Model 1

Model 2

Model 3

Dependent Variable:

Successions

Regressors:

Prior Change

-1.95

(0.000)

-3.63

(0.000)

Prior Change Squared

0.27

(0.000)

PCN

0.29

(0.043)

0.32

(0.034)

0.32

(0.034)

WOS

Reference category

Majority Owned IJV

-0.02

(0.921)

-0.03

(0.902)

-0.06

(0.794)

Equally Owned IJV

0.25

(0.526)

0.20

(0.643)

0.23

(0.607)

Minority Owned IJV

0.70

(0.023)

0.48

(0.138)

0.39

(0.231)

Expatriate Ratio

0.07

(0.835)

-0.24

(0.485)

-0.01

(0.979)

MNE Size

0.08

(0.225)

-0.04

(0.599)

-0.03

(0.684)

Subsidiary Size

0.01

(0.259)

-0.00

(0.990)

0.00

(0.785)

Tenure

1.38

(0.000)

0.27

(0.000)

-0.24

(0.002)

Profitability

-0.05

(0.595)

-0.10

(0.255)

-0.09

(0.358)

Subsidiary Age

-0.72

(0.247)

0.77

(0.295)

1.07

(0.186)

Subsidiary Age Squared

-0.03

(0.930)

0.06

(0.883)

1.15

(0.008)

Competitors

-0.02

(0.542)

0.02

(0.622)

-0.00

(0.938)

FDI Inflow

-0.01

(0.338)

-0.00

(0.893)

-0.00

(0.870)

GDP Growth

0.01

(0.334)

0.02

(0.124)

0.01

(0.257)

Human Capital Index

0.38

(0.535)

1.55

(0.027)

0.79

(0.263)

Unemployment

-0.05

(0.120)

-0.05

(0.133)

-0.04

(0.176)

Regional HQs

-0.87

(0.086)

-1.22

(0.044)

-1.00

(0.087)

Tax Rate

0.02

(0.215)

-0.01

(0.480)

-0.01

(0.697)

Sister Subsidiaries

0.07

(0.762)

0.01

(0.964)

0.11

(0.678)

Strategic Motives

Yes

Year Dummies

Yes

Observations

8,864

Number of subsidiaries

1,328

Chi-squared

800.77

1412.72

1612.72

McFadden’s pseudo-R2

.122

.214

.245

Notes: P-values in parentheses of coefficients; Meanwhile, it is important to note that the fixed-effects logit

model is a conditional logit, thus estimating the marginal effects is not meaningful (because the marginal

effects depend on the value of the fixed effects) (Allison, 2009). This suggests that I cannot simply follow

the existing approach (e.g., Wiersema & Bowen, 2009) to graphically demonstrate the result, though the

marginal plot in STATA did show a clear U-curve here. Based on Model 3, I also plotted the fitted values of

the predicted probabilities of GM successions, where the predicted probability of GM change is conditional

on one positive outcome (i.e., one succession event) within a subsidiary. I found a clear U-curve again,

where the predicted probability of further GM change will decline by around 8% after the first succession

and will further decline by another 5% after the second succession. The effect continues to decline along

with every GM change and eventually the sign is shifted from the sixth succession onward. These plots are

available upon request. Nonetheless, I can use a method to calculate the average elasticity using the

consistent estimator of the parameter of interest and the average of binary dependent variable (Hoetker,

2007). This method was first brought to light mathematically by Kitazawa (2012). To apply this method, I

applied the analytical program written by Kemp and Silva (2016) and found that the “turning point” (Haans

et al., 2016) in this case is the global extremum at −"!/2"" where "" is 0.22 and highly significant while "!

is -2.96 and highly significant. Thus, the results suggest that after the sixth successions, the momentum will

shift from deceleration to acceleration. In a separate analysis, I did not transform Tenure, Competitors, Sister

Subsidiaries, Subsidiary Size, and MNE Size in Model 3. Hypothesis 1 remained supported.

Models 1 to 4 in Table 5 examine the antecedents of subsidiary GM successions. Model 1

only uses control variables, where the McFadden’s pseudo-R2 is .122. In model 2, I added Prior

Change into the regression and found that the McFadden’s pseudo-R2 went up to .214. Relative

to the controls-only model, therefore, Model 2 represents a substantial improvement (Hoetker,

2007). Meanwhile, in Model 2, the coefficient of Prior Change is negative (Beta = -1.95) and

highly significant (p-value < .001), supporting the deceleration argument that prior GM

successions in the focal subsidiary reduce the likelihood of subsequent succession. In Model 3,

however, I found that the coefficient of the quadratic term (i.e., Prior Change Squared) is

positive (Beta = 0.27) and highly significant with a p-value below .001. Also, in Model 3, the

McFadden’s pseudo-R2 went up to .245. The results lend strong support to the argument that

from a threshold onward, prior subsidiary GM successions in the focal subsidiary operations will

increase the likelihood of subsequent succession in the subsidiary, accelerating the momentum

for further change. Taken together, Hypothesis 1 is supported.

Model 4 examines the performance consequence of subsidiary GM successions, and Model

5 tests the effects of subsidiary changes on the likelihood of subsidiary exit. Table 6 reports the

results.

In Model 4, I found that the coefficient of Prior Change is positive and significant (p-value

= .017) while its quadratic term is negative and highly significant (p-value = .017). This pattern

supports Hypothesis 2. Based on the coefficients in Model 4, for example, the turning point

suggests that from the fifth subsidiary GM onward, the subsidiary performance will be more

Table 6: Empirical Results for Hypotheses 2-4

Model 4

(Fixed-Effects Logit)

Model 5

(Log-Logistic)

Dependent Variable:

Profitability

Subsidiary Exit

Regressors:

Prior Change

0.34

(0.017)

0.42

(0.018)

Prior Change Squared

-0.05

(0.017)

-0.04

(0.189)

Gradual Localizer

-0.59

(0.003)

Gradual Integrator

-0.30

(0.085)

WOS

Reference category

Majority Owned IJV

0.19

(0.456)

0.30

(0.129)

Equally Owned IJV

0.46

(0.332)

0.48

(0.062)

Minority Owned IJV

0.24

(0.513)

0.74

(0.000)

Expatriate Ratio

-1.05

(0.009)

-0.31

(0.456)

MNE Size

0.03

(0.661)

-0.07

(0.026)

Subsidiary Size

0.08

(0.000)

-0.01

(0.526)

Tenure

0.15

(0.068)

0.19

(0.058)

Subsidiary Age

1.75

(0.001)

-0.02

(0.985)

Subsidiary Age Squared

-0.16

(0.615)

-0.02

(0.953)

Competitors

0.01

(0.720)

-0.07

(0.007)

FDI Inflow

0.02

(0.015)

0.02

(0.105)

GDP Growth

0.04

(0.004)

0.00

(0.961)

Human Capital Index

0.34

(0.626)

0.20

(0.217)

Unemployment

-0.04

(0.303)

0.07

(0.033)

Tax Rate

0.04

(0.007)

0.00

(0.873)

Regional HQs

2.19

(0.005)

-0.20

(0.745)

Sister Subsidiaries

-0.18

(0.493)

0.54

(0.000)

PCN

0.16

(0.357)

Profitability

-0.47

(0.000)

Strategic Motives

Yes

Year Dummies

Yes

Observations

5,836

7,866

Number of subsidiaries

833

1,945

Chi-squared

516.23

238.95

McFadden’s pseudo-R2

.110

n.a.

Notes: P values in parentheses of coefficients; I led with the dependent variable

Profitability in Model 4 by one year (the results remained consistent when all

independent variables in Model 4 were lagged by one year). For ease of

interpretation, I then used a linear probability model to test Model 4. The coefficient

of Prior Change is 0.045 (p-value = 0.002) and the coefficient of Prior Change

Squared is -0.006 (p-value = 0.003). Therefore, the findings remained consistent. In

particular, the first succession event increases the subsidiary’s probability of being

profitable by 4% and the second succession event increases the subsidiary’s

probability of being profitable by 3%. The effect with every succession continues to

decline and eventually its sign is shifted from positive to negative.

likely to disappoint. Meanwhile, the positive (Beta = 0.42) and significant (p-value = .018)

coefficient of Prior Change in Model 5 lends a strong support to Hypothesis 3. In this case, by

calculating the odds ratio, I found that the odds of subsidiary exit with every GM change will

increase by a factor of 1.52. Taken together, I can conclude that the continual subsidiary GM

change can improve subsidiary performance in the short term, but will be detrimental to firm

performance and survival in the long term.

With respect to the strategic value of succession patterns, I found that the coefficient of

Gradual Localizers is negative (Beta = -0.59) and significant (p-value = .003) in Model 5,

lending support to Hypothesis 4 that the exit likelihood of gradual localizers is lower than that of

subsidiaries only deploying HCN GMs or only using PCN GMs. Specifically, by calculating the

odds ratio, the result shows that there is a 45 percent decrease in the odds of subsidiary exit with

this specific succession pattern. Gradual integration does not provide the same result in terms of

the effect size and t statistics, though it is still marginally meaningful in a statistical sense. To

test the effect of succession patterns on subsidiary profitability, I changed Model 4 into a

random-effects model and replaced PCN with Succession Patterns. The separate analysis showed

that the coefficient of Gradual Integrators is negative (Beta = -0.50) and significant (p-value

= .056). Taken together, these findings support that gradual integration and gradual localization

are not equifinal.

DISCUSSION

My analysis showed that the evolutionary perspective can be usefully extended to the

subsidiary GM’s value creation potential through a focus on the GM succession dynamics. In so

doing, I develop a temporal model

that investigates long-term issues in subsidiary GM staffing.

Although this study primarily investigates the temporal issue of knowledge activities within MNEs, I recognize the

I therefore extend the extant research on foreign subsidiary GM staffing (e.g., Harzing, 2001;

Peng & Beamish, 2007; Schotter & Beamish, 2011b) towards a dynamic perspective.

Concurrently, I also bring to the fore the parenting role of MNEs, which seems more or less

absent in evolutionary theory (Forsgren, 2017; Foss & Pedersen, 2019), thus further enhancing

evolutionary theory’s relevance to practice.

I address two theoretical inconsistencies in current succession research and bring to light

the intrinsic compatibility among them. The results showed that as decision makers in MNEs

accumulate succession experience within a subsidiary, the probability of further GM change

decreases. This empirically confirms that MNEs are adaptive and learning institutions, where

changes initiate learning (Balogun & Jenkins, 2003) and (higher-level) learning in turn reduces

the need for further changes (Cook & Yanow, 1993). But at the same time, the findings also

showed the dynamic nature of learning within MNEs. As prior change within a subsidiary

concurrently reduces the marginal costs of making similar change decisions, organizational

learning can shift from higher-level to lower-level. As a result, the momentum for further change

will be accelerated. Taken together, the results enabled me to address the call to investigate the

direction of endogenous change (Feldman & Pentland, 2003), and empirically corroborate the

supposition that as path dependence evolves, the positive dynamics continue until self-

reinforcing process winds up in a lock-in trap (Sydow, Schreyögg, & Koch, 2020).

Meanwhile, my analysis links organizational learning and strategy research (Crossan &

Berdrow, 2003) and provides a step forward in resolving the succession adaptation-disruption

importance of the role of spatial dimension in knowledge creation and transfer (Kogut & Zander, 1995) and the

behavioral implications (Foss & Pedersen, 2019). Empirically, I found that general succession experience

accumulated outside the subsidiary but within the MNE will also accelerate the momentum for further GM change

in the focal subsidiary. This further corroborates the notion that an integration scheme that overlooks context can be

detrimental (Hébert et al., 2005).

paradox. On one hand, the results demonstrated that replicating a behavioral pattern can damage

the organization in the future (Sydow et al., 2009) and continual GM change has a disruptive

nature (Schepker et al., 2017). But I do not take an overly-negative stance here. Instead, the

longitudinal analysis showed that there exists a middle ground where inertia is countered and

learning is sustained.

The results also highlighted the importance of succession patterns. The findings revealed

that the localization of an integrated subsidiary and the integration of a localized subsidiary are

not equifinal. My theory is that the administrative heritage formed at subsidiary founding can be

either a great asset or a significant liability, depending on both the initial subsidiary GM staffing

decision and subsequent adjustments. In so doing, the analysis can simultaneously extend the

study of Beamish and Inkpen (1998) by investigating “when” deploying HCN GMs is

beneficial

; the work of Hébert et al. (2005) by furthering the contingency thinking on “when”

using PCN managers can enhance subsidiary survival; the work of Sekiguchi et al. (2011) by

providing longitudinal evidence for the advantage of using PCN GMs at subsidiary founding;

and the work of Riaz et al. (2014) by differentiating the role of dynamically deploying high-level

managers from that of other subsidiary employees in organizational performance.

Managerial Implications

This study has several ramifications for practitioners. Increasingly, some new narratives

seem to support the notion of boss-less organization (e.g., Hamel, 2011). To answer the question

about whether leaders matter (Friedman, 2017), my answer is yes. However, in an era when the

risk of selecting the wrong candidate is greater than any time in the past (Donatiello, Larcker, &

I concur that opportunism of HCN GMs is an important micro-foundational assumption (Müllner et al., 2017). But

underpinning my theorizing is a premise that identity building can ultimately address it.

Tayan, 2018), overly relying on GM succession routines, though enabling MNE managers to

economize on the costs of change, can be problematic. They may ultimately lock the focal

subsidiary into a continual GM change process. MNEs thus need to know when associated

problems will outweigh the benefits of relying on succession routines.

Understanding the succession momentum issue is crucial, as continual GM change can

harm subsidiary performance and reduce the likelihood of subsidiary survival. To avoid the

downside risk and capture the upside potential of successions, there are two possible solutions:

keeping the number of succession events in the focal subsidiary low; or, following the gradual

localization trajectory. Such a succession strategy is also timely, given that the COVID-19

pandemic renders the idea of an upward trajectory of international assignments highly unlikely

(Caligiuri et al., 2020). Therefore, gradually shifting to HCN GMs makes good business sense.

Limitations and Future Research Opportunities

This study is not without limitations, and therefore raises many new research issues. First,

due to the COVID-19 pandemic, I am not able to conduct close-up field observations or to

participate in management meetings on site. Future research may apply more refined and

contextualized qualitative research methods to depict a fuller picture of succession decision

making. Meanwhile, to continue with this line of inquiry quantitively, I suggest that researchers

could test how other contingencies moderate the factors underlying my conceptualization.

Contingent factors, for example, might include the subsidiary GM’s turnover reason, time

horizon, entrepreneurial leadership, managerial discretion, and compatibility (Chen & Hambrick,

2012; Georgakakis & Ruigrok, 2017; Juravich, Salaga, & Babiak, 2017; Karaevli, 2007; Matta &

Beamish, 2008; Sarabi, Froese, Chng, & Meyer, 2020). All of these are useful to address the

limit of coarse-grained individual characteristics such as nationality which I used here in the

quantitative inquiry (Meyer et al., 2020). At a more macro level, future work can incorporate

power and attention dynamics, the subsidiary’s network structure and its content. All of these

factors can facilitate or impede learning, and thus influence the change in routines (Bouquet &

Birkinshaw, 2008; Gavetti, Greve, Levinthal, & Ocasio, 2012; Reagans & McEvily, 2003).

Second, this study assumes that exit from a foreign market is a manifestation of firm

instability, as exit usually indicates a failure in achieving management’s original goal for the

business (Murray et al., 2012), where almost 90% of exits are unplanned (Makino et al., 2007).

In some cases, however, non-survival does not indicate failure (Mata & Portugal, 2015).

Therefore, it would be fruitful for future studies on this topic to investigate the micro-

foundations underlying subsidiary exit and failure.

Third, the large-sample quantitative analysis only focused on a single home country, Japan.

Similar to previous studies (Delios & Makino, 2003), the use of a single-nation sample may limit

the generalizability of the findings. As a country with one of the oldest populations in the world,

Japan is struggling with its ability to find sufficient numbers of expatriates (Beamish & Inkpen,

1998; Briscoe, Schuler, & Claus, 2009) and is reluctant to use TCNs (Tungli & Peiperl, 2009).

Also, for some Japanese employees, the intended length of stay abroad can be longer than most

expatriates stay abroad (McNulty & Brewster, 2017). Meanwhile, the nature of the employment

relationship and the collectivist sociocultural orientation all result in much more incremental

evolutionary changes within Japanese organizations (Beechler et al., 1998; Sakano & Lewin,

1999). This implies that the influence of previous GM successions may not be as strongly

manifest as otherwise expected in the change of incumbent GMs.

CONCLUSION

The need for a systematic understanding of subsidiary GM successions is pressing. In line

with Schepker et al. (2017), I concur that the theoretical fragmentation in current succession

research is not problematic but an opportunity. In this spirit, I leveraged the distinctiveness of

MNEs and a micro-foundational mixed-methods approach to address inconsistencies in the

extant GM succession literature. I then took an evolutionary perspective to extend the theory of

subsidiary GM successions and develop a process-based theoretical argument that links

individuals in leadership with various subsidiary-level outcomes (Meyer et al., 2020). I found,

first, the deceleration and acceleration momentum for further GM change can take place

sequentially; and second, the continual GM change can be both adaptive and disruptive. The

central message from these higher-order relationships is that the pace and path of foreign

subsidiary GM successions matter, as they can affect the future succession dynamics in the

subsidiary on one hand, and the subsidiary performance and survival on the other.

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CHAPTER 3: MNE ATTENTION AND GENERAL MANAGER SUCCESSION IN

FOREIGN SUBSIDIARIES (ESSAY 2)

INTRODUCTION

The COVID-19 crisis has pushed senior managers in multinational enterprises (MNEs) to

reconsider the key questions as to whether they have the right people in the right places

(Caligiuri, De Cieri, Minbaeva, Verbeke, & Zimmermann, 2020). The pandemic exposed an old

problem, that is, there are talented managers as well as poor performers in foreign subsidiaries

remaining in “blind spots” (Mellahi & Collings, 2010), which in turn impacts the subsidiary

competitive advantages (Meyer, Li, & Schotter, 2020; O’Brien, Scott, Andersson, Ambos, & Fu,

2019). One underlying cause of this problem is that an MNE is usually unable to attend to all of

its foreign subsidiaries (Belenzon, Hashai, & Patacconi, 2019; Bouquet & Birkinshaw, 2008a),

as the intra-organizational networks of the MNE are characterized by separation through time,

space, culture, and language (Ambos & Ambos, 2009).

Gaining MNE attention, which is a reflection of foreign subsidiaries’ power (Bouquet &

Birkinshaw, 2008a, 2008b) and more expansive roles (Ambos & Birkinshaw, 2010), enables

foreign subsidiaries to obtain more resources (Andersson & Forsgren, 2000). On the other hand,

however, gaining MNE attention may also increase headquarters’ monitoring (Andersson,

Forsgren, & Holm, 2007; Mudambi & Pedersen, 2007). Here, monitoring refers to the

implementation of routinized control mechanisms, such as replacing managers (Ambos,

Andersson, & Birkinshaw, 2010) who are viewed as important attentional carriers (Ocasio,

2011). Indeed, anecdotal evidence indicates that the efforts of the foreign subsidiary to gain

power and attention may lead to MNE intervention and the replacement of management when

subsidiary performance is poor (Bouquet & Birkinshaw, 2008a).

Concurrently, however, considerable evidence in the strategic management literature exists

that managerial power is one of the central elements in the succession decision-making process

(Finkelstein, 1992). Specifically, researchers have shown that a downturn in performance may

trigger GM turnover in domestic subsidiaries (Blackwell, Brickley, & Weisbach, 1994; McNeil,

Niehaus, & Powers, 2004) and that power-dependence is a major source of indeterminacy that

affects the performance–succession link (Boeker, 1992; Fredrickson, Hambrick, & Baumrin,

1988; Pfeffer & Salancik, 2003; Salancik & Pfeffer, 1980). The central argument in this line of

research is that the existing GM in a poorly performing organization in a domestic setting can

leverage strategic configurations in order to defer succession. Rooted in the strategic

contingencies perspective of subunit

power (Hickson, Hinings, Lee, Schneck, & Pennings,

1971), Drazin and Rao (1999) term this the performance–power–succession model.

The foregoing inconsistency suggests that the extant models based on single-country

studies may need adaptation in order to inform foreign subsidiary GM succession (Müllner,

Klopf, & Nell, 2017). However, there is a lack of international examination of the power–

succession link (Pi & Lowe, 2011). To develop a more predictive theory and better utilize the

distinctiveness of the MNE context for theory building, I use a pluralistic methodology (Van de

Ven, 2007) to contrast the MNE attention perspective (Ambos et al., 2010; Bouquet &

Birkinshaw, 2008a; Monteiro, 2015) with the strategic contingencies perspective (Drazin & Rao,

1999; Hickson et al., 1971) to investigate the relationship between foreign subsidiary

performance and subsidiary GM succession. Therefore, the question which guides this research

is: How do strategic configurations that potentially affect MNE attention and foreign subsidiary

Subunit in this study refers to functional divisions, SBUs, and subsidiaries of purely domestic organizations.

GM power moderate the relationship between poor subsidiary performance and subsidiary GM

succession?

International business (IB) scholars have stressed that one advantage that MNEs have over

single country firms is that they can tap into a globally diverse pool of talent (Mellahi &

Collings, 2010). This defining feature implies that the substitutability of incumbent subsidiary

GMs is higher than that of general managers in a domestic setting. In actuality, however, not all

senior MNE managers can leverage such substitutability advantage to facilitate GM successions

in their foreign subsidiaries. Premised on the notion that knowledge is crucial for the exercise of

power (Forsgren, Holm, & Johanson, 2005), I suggest that only MNEs that have effective

monitoring channels may better exploit their hierarchical power to outweigh the moderation

effect of subsidiary GM power on the performance–succession link. Following prior research

(Bouquet & Birkinshaw, 2008a; Monteiro, 2015), I adopted a mixed-methods approach. In

parallel with the literature review and deductive theorizing process, I conducted 39 formal

interviews (and six follow-up interviews) with MNE decision makers, subsidiary GMs, and the

members of the top management. This qualitative inquiry (described in Appendix) enabled me to

use the deeper understanding of the phenomenon to better inform my hypotheses development.

I argue that while GMs of foreign subsidiaries may accrue power from their subsidiaries’

relative strength within MNEs and the strategic significance of the host country market, the

strong strategic position of the foreign subsidiary may also enhance MNE monitoring, which in

turn facilitates subsidiary GM changes. I term this the performance–attention–succession model.

This model can also be used to explain why the high expatriate ratio in a subsidiary strengthens

the link between poor subsidiary performance and GM change. I show that only when there are

conditions under which MNE monitoring proves challenging (O’Donnell, 2000), will the

performance–power–succession model work (but the effect size here appears to be small). I test

the hypotheses, which are both theoretically derived and empirically informed, by using a fixed-

effects longitudinal analysis of 1,153 Japanese subsidiary firms between 1991 and 2013. I also

show that changing the GM in a poorly performing subsidiary can effectively turn around the

subsidiary’s performance.

This study aims to make the following contributions to research and practice. First, it

challenges the performance–power–succession model by demonstrating the intriguing double

effect of strategic configurations, which can lead to disparate succession consequences. Thus, it

enables me to advance the theory by using an alternative explanatory mechanism (Roth &

Kostova, 2003) to explain more fully the performance–succession association in the unique

context of MNEs. Second, it addresses the call to theoretically and empirically investigate the

issue of negative headquarters attention (Bouquet & Birkinshaw, 2008a). Also, by using

temporal progressions of activities as elements of explanation (Langley, Smallman, Tsoukas, &

Van de Ven, 2013), I show the long-term gains of this negative intervention.

Next, I first review the literature on GM succession. I then present my framework and

hypotheses. After discussing the quantitative data, the measures, and the model, I present my

quantitative analysis results and their implications for theory and practice.

THEORY BACKGROUND

Performance–Power–Succession Model

Poor organizational performance will likely lead to a change in corporate GMs (Boeker,

1992; Boeker & Goodstein, 1993; Kesner & Sebora, 1994; Li, 2018; Wiersema & Bantel, 1993)

and to a change in GMs in domestic subsidiaries (Blackwell et al., 1994; McNeil et al., 2004).

The research on this matter has been abundantly clear (Finkelstein, Hambrick, & Cannella,

2009), and firm performance maintains its heritage as a critical succession antecedent

(Giambatista, Rowe, & Riaz, 2005).

However, the relationship between performance and succession is not as direct as it seems

(Pfeffer & Salancik, 2003; Salancik & Pfeffer, 1980). The source of indeterminacy derives from

a variety of sociopolitical forces that intervene between performance and the change of GM

(Flickinger, Wrage, Tuschke, & Bresser, 2016; Fredrickson et al., 1988). Examples in this regard

may include the entrenchment of the incumbent and the availability of candidates. In brief, when

an incumbent controls critical resources, or candidates are not readily available, the GM can

proactively accrue power in order to defer succession in a poorly performing organization

(Boeker, 1992).

This performance–power–succession model has also been applied to the study of other

types of executive roles. For example, Drazin and Rao (1999) explored the power bases of

strategic business unit (SBU) managers. Specifically, the authors built their model around the

strategic contingencies perspective of subunit power to highlight the implications for succession

research at a subunit level (Hickson et al., 1971).

Strategic Contingencies Perspective Versus MNE Attention Perspective

Hickson et al. (1971) focused on structural sources of intra-organizational power.

Grounded in a power-dependence view (Emerson, 1962), the authors argued that the centrality of

workflows, the substantiality of activities, and the ability to cope with critical uncertainties

determine the variation in interdependence between subunits. In a sense, power is the ability of

one subunit to affect organizational decisions in ways that lead to outcomes favorable to the

subunit (Pfeffer & Salancik, 2003). Such subunit power can also result in more conservative

behaviors (e.g., avoiding organizational changes) (Mitsuhashi & Greve, 2004). Building on the

ideas advanced by Hickson and his colleagues, Drazin and Rao (1999) found that the critical

contingencies (e.g., revenue or market share) controlled by the incumbent SBU manager interact

with poor subunit performance to either increase or decrease the probability of GM succession.

The similar power bases have also been tested in studies of other political dynamics inside

multiunit firms, such as the divestiture of formerly acquired subunits (Xia & Li, 2013). Along

with the development of the interdependence-based approach, a market-dependence-based

approach to identifying subunit power has begun to gain momentum (e.g., Xia, Yu, & Lin,

2019). In this new strand of research, the exchange of resources (Jacobs, 1974) is no longer

viewed as a necessary condition for a subunit to shape its power base. Instead, the relative

importance of the market in which the subunit operates suffices to determine its power (Xia et

al., 2019).

Integrating the foregoing two approaches and in the setting of MNEs, Bouquet and

Birkinshaw (2008a) pointed out that both the host-country market significance and the

subsidiary’s relative strength within the MNE can confer power to the subsidiary. In turn, this

power can enable the subsidiary to gain parental attention. However, the authors also used the

example of 3M Canada to stress that attention from headquarters is not always positive, as it may

lead to drastic interventions from MNEs such as the replacement of management when a

subsidiary’s performance disappoints. Subsidiaries can also gain power and thus attention by

taking initiatives (Bouquet & Birkinshaw, 2008b; Delany, 2000). But Ambos et al. (2010)

stressed that MNEs might also be more likely to replace managers in the subsidiaries that took

initiatives (and therefore are closely monitored by their MNEs). These arguments stand in sharp

contrast with the predictions based on the performance–power–succession model. As I discuss in

greater depth in the next section, one cause of this inconsistency may lie in the multi-faceted

influences of structural determinants, which will lead MNE attention and subsidiary GM power

to co-vary. However, MNE attention and subsidiary GM power will result in different GM

succession consequences in poorly performing foreign subsidiaries. To gain a more complete and

accurate understanding of the performance–succession relationship in the setting of foreign

subsidiaries, this study theorizes about these opposing mechanisms simultaneously. These two

mechanisms share a same baseline, which I will introduce in the next section.

Foreign Subsidiary Performance and Subsidiary GM Succession

IB scholars argue that the role of foreign subsidiary GMs is intricate and challenging

(Bartlett & Beamish, 2018). To form routines that are the crucial determinant of firms aligning

with a new environment, foreign subsidiary GMs should simultaneously understand the MNE’s

agenda in the host country and the local business culture (Elg, Ghauri, Child, & Collinson,

2017). The strategic value of foreign subsidiary GMs, coupled with the challenges imposed on

the subsidiary GM role, may subject the performance of foreign subsidiary GMs to great

scrutiny by MNEs. Indeed, decision makers at the headquarters are found to be more sensitive

to subsidiary GM performance than board members are to CEO performance in standalone

firms (McNeil et al., 2004).

When the performance turns subpar, foreign subsidiary GM succession will offer the

MNE a great opportunity to regain fit between the environment and the subsidiary and between

the MNE and the subsidiary (Friedman, 2017; O’Brien et al., 2019; Ocasio, 1999). As regional

CEO 2 of a large Israeli MNE explained: “I use subsidiary GM successions as a way to grow.”

At the same time the poorly performing subsidiary will be more vulnerable to pressure from the

MNE to conform (Ferner, Edwards, & Tempel, 2012). Therefore, GM succession is found to be

more likely to occur in a poorly performing foreign subsidiary (Sonkova, 2015). My interviews

reveal that poor subsidiary performance did lead to the change of the subsidiary GM in MNEs

from Finland, Sweden, South Korea, The US, China, Israel, and Singapore. The director of the

Singapore MNE said: “The poor performance is the top reason to change the subsidiary GM.”

Also, the subsidiary HR manager from a US MNE told us: “When performance was poor…it is

normal that the GM would be changed.” Taking previous empirical findings and the qualitative

data as the starting point, therefore, I treat the higher GM succession probability in poorly

performing foreign subsidiaries as the baseline going forward.

HYPOTHESIS DEVELOPMENT

Following Bouquet and Birkinshaw (2008a), I integrate the market-based approach with

the interdependence-based approach to argue that two types of structural factors may impact

MNEs’ attention and subsidiary GM power, which will in turn affect subsidiary GM succession.

They are the structure of the host-country market in which the subsidiary operates (hereafter, the

external structure) and the structure of the MNE’s intra-organizational network (hereafter, the

internal structure). Figure 1 demonstrates the organizing framework of this essay. Through a

market-based lens, I investigate the external structure first.

Figure 1: Organizing Framework

The external part of the subsidiary network can be used to form the base for the

subsidiary’s influence within the MNE (Andersson & Forsgren, 2000; Andersson et al., 2007).

By definition, an MNE “is an enterprise that engages in foreign direct investment (FDI) and

owns or, in some way, controls value-added activities in more than one country” (Dunning &

Lundan, 2008: 3). It has been established that FDI will be directed to host countries where the

market is large, resources are rich, or assets are strategically important (Cuervo-Cazurra &

Narula, 2015). The extent of capital flows from the MNE tend to be greater for subsidiaries

operating in larger national markets (Gupta & Govindarajan, 1991), for which the MNE may

have high hopes (Ambos & Birkinshaw, 2010). As criticality measures the organization’s ability

to continue functioning in the absence of the market (Pfeffer & Salancik, 2003), I would expect

that host countries that have received the most FDI inflows are or will be a critical market for

Poor subsidiary

performance

Subsidiary GM

succession

Flows of revenue

Host country FDI

inflows

Country-of-origin

competitors

Baseline (+)

H3(+)

H1(-) H2(+)

Internal Structure

(Interdependence Based Approach)

External Structure

(Market-dependence Based Approach)

Expatriate Ratio

H4(+)

Enhancing both subsidiary GM power and MNE monitoring

Mainly enhancing subsidiary GM power

Mainly enhancing MNE monitoring

MNEs. I concur that the MNE is likely to put more weight on subsidiaries that are currently

operating in the most important markets (Xia et al., 2019), but this does not preclude the

possibility that the MNE will keep a close eye on those subsidiaries operating in high-FDI

countries, which hold great potential to develop into the new core of the MNE’s portfolio.

Bouquet and Birkinshaw (2008a) suggest that the presence of other foreign MNEs may signal an

agglomeration effect that can enhance the MNE’s competitiveness in the future or may signal the

availability of critical location-specific advantages. On this basis, the strategic contingencies

perspective may thus posit that a subsidiary GM can accrue power from the market criticality

and thus be more likely to remain in office when the subsidiary performance disappoints.

At the same time, however, some MNEs in my data have developed a pool of subsidiary

GM candidates over time. For example, subsidiary GM 8 said, “When the next succession is

needed and when we do have available and qualified candidates on hand, the succession will

occur smoothly.” Occasionally MNEs also expatriate GM candidates internally. As Regional

GM 3 noted, “When internal candidates within the subsidiary are not readily available, we will

transfer some GM candidates from other subsidiaries to the focal subsidiary.” Therefore, given

the MNE’s inherent advantage in tapping into a globally diverse pool of talent (Mellahi &

Collings, 2010), the higher substitutability of the incumbent subsidiary GM relative to general

managers in a domestic setting suggests that MNEs may possess the hierarchical power or a

“parenting advantage” which outweighs the power of the subsidiary GM, facilitating subsidiary

GM succession when the subsidiary performance disappoints. To successfully exercise such

power, however, I argue that the means-end relationship needs to be clear and unambiguous.

But an MNE may encounter difficulties in monitoring the subsidiary’s operation in a high-

FDI country. If the MNE lacks a direct linkage with the host-country environment (Asakawa,

2001; Kano & Verbeke, 2019), the subsidiary as a knowledge broker can sustain its power by

leveraging the market knowledge gap (Griffith & Harvey, 2001; Holm, Johanson, & Thilenius,

1995). This gap refers to the knowledge difference between the subsidiary and the MNE in

relation to the host-country market and local business networks. As HR manager 1 explained: “It

is natural that GMs who have power, can prolong their tenures…The GM in China, though

disengaged for quite a while, can still remain in office…because he has channel information that

the HQs has no clue about.” When MNE managers know little about the subsidiary’s local

networks and its business environment, the MNE is not in a strong position to act hierarchically

(Andersson et al., 2007; Vahlne, Schweizer, & Johanson, 2012). I therefore argue that when a

subsidiary performs poorly in a host-country market that attracts a large amount of FDI, the

existing subsidiary GM is less likely to be replaced and the MNE is more likely to attribute the

subsidiary’s problems to market conditions. This is because high FDI inflows into a host country

stimulate competition (Blomström & Kokko, 1998; Caves, 1971), which may result in three

outcomes: the complexity of the host-country environment will increase, rendering local

knowledge even more critical (Nohria & Ghoshal, 1994, 1997); the MNE will be more likely to

receive noisy information, thus the ambiguity of the means–ends relationship will be greater; and

more spaces are left for “skillful interpretations” by subsidiary GMs. Therefore:

Hypothesis 1: Host country FDI inflows will moderate (decrease) the performance–

succession relationship such that GM succession is less likely to occur in the poorly performing

subsidiary when the host country receives high FDI inflows.

Implicit in the above theorizing is an assumption that decision makers with bounded

rationality and limited attentional capacity may only be able to closely monitor a specific

sub-environment (Birkinshaw, Bouquet, & Ambos, 2007; Porac, Thomas, & Baden‐Fuller,

1989). Indeed, in the host country context, an MNE may pay more attention to the actions of

other MNEs from the same nation (Chang & Park, 2005). MNEs from the same home

country represent a distinct organizational population (i.e., country-of-origin

agglomeration), as they share the same language, culture, and institutional background. The

linkages lead to interorganizational effects, encouraging imitative behavior (Guillén, 2002)

and inferential (or vicarious) learning (Jiang, Holburn, & Beamish, 2014; Yang, Li, &

Delios, 2015). To illustrate how MNEs scan the host-country environment, Tan and Meyer

(2011) found that the country-of-origin agglomeration, relative to the industry

agglomeration, is more likely to provide an effective channel for the sharing of knowledge.

Similarly, co-ethnic support (i.e., support from country-of-origin MNEs that operate in the

same host country) is found to significantly affect MNEs’ location choices, expansion speed,

and survival (Kalnins & Chung, 2006; Stallkamp, Pinkham, Schotter, & Buchel, 2017). At a

micro level, research has also shown that the concentration of same-nationality immigrants

can influence an MNE’s operations (Hernandez, 2014). The underlying mechanism shared

by these studies is that homophily or affiliation ties resulting from a common nationality can

facilitate knowledge exchanges (Lawrence & Shah, 2020; McPherson, Smith-Lovin, &

Cook, 2001).

Meanwhile, many studies have found that the industrial background is the defining

feature of reference groups in the business world (e.g., Chang & Park, 2005; Chen & Miller,

2007; Greve, 1998; Posen, Keil, Kim, & Meissner, 2018). Similarities in the industrial

knowledge base can help the focal organization measure and value knowledge from other

companies more effectively (Lane & Lubatkin, 1998). Combining this argument with the

homophily mechanism, I thus argue that the number of country-of-origin competitors in the

host country (i.e., competitors sharing the same industry background and country of origin

as the focal subsidiary) positively influences the MNE’s ability to acquire critical knowledge

about the host-country market situation and the relevant business networks (customers or

suppliers). The reason is that the activities of these competitors collectively provide detailed

information about the underlying reality. As supply chain manager 1 of a US MNE noted:

“Our MNE mainly competes in China with other US companies. AD, TX…So, telling a false

story about the China market is very difficult (for the subsidiary managers).”

HR manager 2 also told me that her MNE focuses more on the country-of-origin

competitors, because “the technology started from the US…So there are similarities

between us… Our (country-of-origin) competitor is number one in this field...and we are

number two.” Similarly, the interview data show that an Israeli irrigation MNE chooses

other Israeli companies to compare in the host country “because Israeli products have high

quality, we focus more on Israeli competitors, and then local ones.”

As a result, while the presence of country-of-origin competitors might also signal the

criticality of the host country market from which the subsidiary GM can accrue power, it can

simultaneously broaden the MNE’s information channel that is used to monitor the

subsidiary. This theoretically derived and empirically grounded argument is consistent with

Foss and Pedersen’s (2019) micro-foundational theorizing that stimuli embedded in the

more proximal context have stronger behavioral implications. The second hypothesis reads,

Hypothesis 2: The country-of-origin competitors in the host country will moderate

(increase) the performance–succession relationship such that GM succession is more likely to

occur in the poorly performing subsidiary when the number of country-of-origin competitors in

the host country is high.

I turn my attention now to the internal structure of MNEs by adopting an interdependence-

based approach. The relative strength of the foreign subsidiary compared to the rest of the MNE

positively affects the subsidiary’s ability to obtain resources from the environment (Andersson &

Forsgren, 2000), as it increases the amount of the MNE’s positive attention that follows in its

direction (Bouquet & Birkinshaw, 2008a; Collings, Mellahi, & Cascio, 2019). As the stock of

distinctive resources increases in the subsidiary, the relative power of the subsidiary further

increases (Birkinshaw & Hood, 1998; Nohria & Ghoshal, 1997). In this regard, if I follow the

logic of strategic contingencies perspective, I can then posit that the relative strength of the

subsidiary in the form of revenue controlled by the subsidiary can be leveraged by the subsidiary

GM to gain power in order to mitigate the turnover risks when the subsidiary performance

becomes poor (Drazin & Rao, 1999).

However, my empirical observations suggest a different view. As subsidiary PR manager 1

of the Singapore MNE noted: “Due to the importance of the market (because of the high

revenue) and the company’s role inside (the MNE)…our subsidiary’s performance is under great

scrutiny from HQs…The financial reports are reviewed (by the HQs) on a daily basis…We have

changed 16-17 subsidiary GMs in the past 17 years.”

Indeed, prior studies have also shown that a large operation might increase the parent’s

influence over the subsidiary’s personnel policies (e.g., Youssef, 1973). Given the

interdependencies between powerful subsidiaries and MNEs (Gupta & Govindarajan, 1991), it

seems likely that the flipside of possessing a conspicuous position within an MNE is that when

the performance of the important subsidiary is poor, the MNE will also have a great deal at stake.

Meanwhile, as powerful subsidiaries may engage in rent-seeking behaviors (Mudambi &

Navarra, 2004), MNEs might be willing to increase monitoring of important subsidiaries in order

to undermine such subsidiaries’ influence (Andersson et al., 2007), or to tap into the subsidiaries’

store of specialized knowledge (O’Donnell, 2000). Also, it seems likely that the relative strength

of the subsidiary will render its operations more observable, which will in turn facilitate the

MNE’s scrutiny. This suggests that subsidiary visibility has a double-edged nature (Yamin &

Andersson, 2011). In contrast with Drazin and Rao (1999), I therefore argue that when the poorly

performing subsidiary controls a high portion of the MNE revenue, the MNE will be more likely

to replace the subsidiary GM in order to turn the subsidiary’s performance around. Formally:

Hypothesis 3: The foreign subsidiary revenue will moderate (increase) the performance–

succession relationship such that GM succession is more likely to occur in the poorly performing

subsidiary when the subsidiary controls a high portion of MNE revenue.

The second factor in the internal structure dimension is the deployment of expatriate in

the foreign subsidiary. Considering the role of expatriates in controlling the subsidiary on

behalf of MNE headquarters (Collings, Scullion, & Dowling, 2009; Shin, Hasse, & Schotter,

2017), the relative use of expatriates might also indicate the importance of the subsidiary. As

sales manager 1 explained: “(The host country) is the largest overseas market for our T

product... Expatriates can make up to 70 % of the staff.” In contrast, the deputy GM based in

the UK noted, “This subsidiary used to be a small subsidiary (and thus had very few

expatriates), so we just let it grow freely. We didn’t have any requirements.” In this case, then,

the strategic contingencies perspective may posit that the power of the GM when the subsidiary

has more expatriates might be higher than that of GMs when the subsidiary has fewer

expatriates, thus potentially weakening the poor performance–succession link.

However, the deployment of expatriates can also directly strengthen MNE monitoring

(O’Donnell, 2000; Plourde, Parker, & Schaan, 2014). Tarique et al. (2006) suggest that

expatriates may know more about the MNE’s culture, and thereby can more effectively

facilitate communication with the headquarters and align the subsidiary’s operations with the

interests of the MNE. Relatedly, prior studies have shown that expatriates as trusted informants

can enable the MNEs’ gathering of information and active learning (e.g., Plourde et al., 2014).

My empirical observations support this view. As an expatriate explained, “The subsidiary GM

got involved in many fraud issues, which remained unnoticed until I was expatriated to the UK

office.” Similarly, as sales manager 1 of a Korean MNE noted, “expatriates have direct

communications with the HQs”, indicating the smooth flow of information. More than that, the

accuracy of information is also enhanced with the use of expatriates. As Regional CEO 3 noted:

“If the outcome is poor, then the deputy GM (who is an expatriate) will check with the

subsidiary CEO about whether the process follows the HQs’ guidelines.” Based on extant

literature as well as my empirical data, therefore, I anticipate that the higher the expatriate ratio

in the foreign subsidiary, the more effective the MNE monitoring can be. Derived from the

MNE attention perspective, I hypothesize:

Hypothesis 4: The expatriate ratio in the foreign subsidiary will moderate (increase) the

performance–succession relationship such that GM succession is more likely to occur in the

poorly performing subsidiary when the subsidiary’s expatriate ratio is high.

QUANTITATIVE HYPOTHESIS TESTING

Data

For the quantitative analysis, I use the Toyo Keizai NEEDS Merged Database (1991–

2013). Same as in Essay 1, to maintain the consistency of data and to control for influences due

to conflicts within Japanese parent firms, I only study foreign subsidiaries in which there is no

change in parent firm and have had only one Japanese parent throughout their development.

Consistent with FASB protocols, a foreign subsidiary here refers to a company in which the

Japanese MNE has at least a 20 percent ownership stake. Some subsidiaries have operated in the

host countries for many years before they first appeared in the dataset. Same as in Essay 1, I drop

subsidiaries that had already operated in the host countries for more than two years when they

first appeared in the dataset. Finally, I remove subsidiaries in which the number of employees

has never exceeded nine to ensure the database does not include small representative offices or

agencies.

Model

Because recurrence times within each subsidiary should not be modelled as independent

(Beck, Brüderl, & Woywode, 2008), I use a fixed-effects logit model

to partial out the

unobserved subsidiary heterogeneity in the propensity to change the GMs. The succession of

each subsidiary GM is assumed to follow the function below:

=($!"

)!"',+,>!

)

1+/#$!"%#(!

)!"

1− 1

1+/#$!"%#(!

*#)!"

with

'$!" = 1[)!"+ +>!+5!" > 0]

In the foregoing function,

represents a subsidiary,

refers to time. I use

;!"

to mean a

succession event in the subsidiary,

)!"

as the vector of independent variables and control

variables, and

as the coefficients associated with these variables. In this model, the errors

5!"

are assumed to be exogenous to all independent variables and

is the time-invariant unobserved

firm-specific variance that can be correlated to the independent variables, i.e.,

Cov'

(

>!,)!"

)

≠ 0

By using a fixed-effects model, I can partial out the unobservable variance

(Allison, 2009).

The results from Hausmann test also support the choice of fixed effects model.

Variables

Dependent variable. Same as in Essay 1, I follow the approach of Beck et al. (2008) to

identify the successions at each observation. The binary variable, Succession, represents the

change of subsidiary GMs. 1 means that a GM change takes place, and 0 otherwise.

Independent variables. The annual assessment of the subsidiary’s financial performance is

from Kaigai Shinshutsu Kigyou Souran. This variable is argued to be an appropriate performance

indicator (Isobe, Makino, & Montgomery, 2000). I recode this profit measure into a binary

variable termed Subpar Performance, where 1 means low performance, and 0 means otherwise.

Competitors is a discrete variable referring to the number of country-of-origin competitors

(i.e., Japanese subsidiaries with different parents) in the host country where the focal subsidiary

operates. These country-of-origin competitors use the same industry (four-digit) code as that of

the focal subsidiary. Because log transformation cannot be applied to zero values this essay takes

the square root of the number of country-of-origin competitors to reduce right skewness.

Following prior studies (e.g., Shin et al., 2017) and same as in Essay 1, Expatriate Ratio is

the number of expatriates in a subsidiary divided by the total number of employees in the

subsidiary. 0 means there is no expatriate in the subsidiary while 1 suggests that all employees in

the subsidiary are expatriates.

I use the intensity of FDI Inflow as a proxy for the market dynamism in a host country. I

utilize panel data on FDI inflows from the Balance of Payments Database (1991–2013) reported

by the International Monetary Fund (IMF). This data has been supplemented by data from the

United Nations Conference on Trade and Development and official national sources. The World

Bank defines FDI inflow as direct investment equity flow in the reporting country. Specifically,

FDI inflow (reported in current U.S. dollars) is the sum of reinvestment of earnings, equity

capital, and other capital. In order to provide a more straightforward interpretation, I divide the

value of this variable by 10 billion.

Similar to the approach of Drazin and Rao (1999), the relative Revenue Flows controlled

by the subsidiary is the revenue of the focal subsidiary divided by the total revenue received by

all subsidiaries of the MNE. This measure denotes the strategic importance of the subsidiary

within the MNE. The higher the value, the more important the subsidiary is deemed to be.

Control variables. First and as mentioned earlier, when given alternatives, an MNE can

undercut the unique value of the subsidiary GM, and thus reduce the power of the subsidiary GM

(Salancik & Pfeffer, 1977). The power of the incumbent will in part depend on the availability of

suitable substitutes (Drazin & Rao, 1999), as power will not organize around abundant resources

(Pfeffer & Salancik, 2003). Therefore, when there is a lack of supply of GM candidates, it is

expected that incumbents will be less likely to leave office (Fredrickson et al., 1988; Pfeffer &

Moore, 1980). Because MNEs may prefer to internally transfer rather than newly hire a

subsidiary GM for the focal subsidiary (Kopp, 1994), and internal turnover is apparently more

common in MNEs than in domestic firms (Naumann, 1992), I would expect that the number of

subsidiaries belonging to the same MNE in a host country will influence the substitutability of

the subsidiary GM. When the MNE looks for a new subsidiary GM to turn a poorly performing

subsidiary around, it might be more willing and able to first look at whether there are candidates

within the intra-firm subsidiary grouping. Logically, the larger the intra-firm subsidiary

grouping, the more likely the MNE will find an internal successor. To measure the size of the

intra-firm subsidiary grouping, I create a variable called Sister Subsidiaries, which is a discrete

variable denoting the number of sister subsidiaries in the host country where the focal subsidiary

operates. I take the square root of this variable to reduce right skewness.

Second, in line with Drazin and Rao (1999), I control for subsidiary GM’s Tenure. It refers

to how many years the subsidiary GM has been in office. I use this variable to control for the

subsidiary GM’s entrenchment, because new subsidiary GMs may face a higher risk of power

contests in the early years of their tenure (Pi & Lowe, 2011; Shen & Cannella, 2002a), thus being

more likely to leave office. In this essay, this variable is log-transformed.

Third, as mentioned in Essay 1, the mode of entry may affect the availability of GM

candidates, and thus affecting GM succession. I control for Entry Mode which is a categorical

variable denoting a firm’s mode of entry. Same as in Essay 1, 1 here denotes a WOS, 2 is a

Majority Owned IJV (i.e., MNE dominated IJV), 3 means an Equally Owned IJV, and 4 a

Minority Owned IJV. I define a subsidiary as a majority owned IJV when the Japanese partner

holds more than 50 percent of the IJV’s equity ownership while the local partner holds more than

20 percent of the IJV’s equity ownership. Consistent with FASB protocols, I define a subsidiary

as a WOS when the MNE holds more than 80 percent of the subsidiary’s equity ownership.

Fourth, the origin of the existing GM may influence the succession probability because the

length of stay abroad of many expatriates has been specified a priori (Harvey & Moeller, 2009;

Mesmer-Magnus & Viswesvaran, 2008). Therefore, I control for the subsidiary GM’s origin.

PCN GM is a binary variable, where 1 refers to a GM who is a Japanese, and 0 means otherwise.

Fifth, prior studies showed that the number of subsidiary employees might also influence

the importance of the subsidiary (e.g., Birkinshaw & Hood, 1998). I thus use the number of

subsidiary employees as a proxy for Subsidiary Size and take the square root of the variable to

reduce right skewness. Similarly, I control for the size of the MNE. Based on the European

Commission’s definition, I regard a firm as a Large MNE if it has more than 500 employees.

Because older organizations might be less likely to engage in change (Mitsuhashi & Greve,

2004), I control for the logarithm of Subsidiary Age. Meanwhile the quadratic term Subsidiary

Age Squared is added here in order to identify the potential curvilinear relationship between

subsidiary age and subsidiary GM change. As mentioned in Essay 1, both younger and older

subsidiaries, albeit for different reasons, might be less likely to change the GMs. I also control

for the period from Year 1991 to 2013. I code this variable into a series of dummy variables to

account for the influence of aggregate time series trends.

I then use the categorical variable Strategic Motives to account for the heterogeneous

impact of FDI motives on the change of subsidiary GMs. This variable is coded into 16 dummy

variables. Relatedly, given that dedicated regional headquarters (RHQs) are also expected to

perform HQ functions while exercising more extensive mandates (Chakravarty, Hsieh, Schotter,

& Beamish, 2017), I anticipate that they would gain more attention from the MNE (Belenzon,

Hashai, et al., 2019). I use a binary variable, Regional HQs, to control for the impact of being an

RHQ on subsidiary GM succession.

Finally, to account for other macro-level factors of the host country, I utilize

Unemployment Ratio data from the International Labour Organization’s ILOSTAT database, the

Human Capital Index data from the Penn World Table (1991-2013) (Feenstra, Inklaar, &

Timmer., 2015), and GDP Growth data from World Bank national accounts data and OECD

National Accounts data files (World Bank, 2019). Also, given that MNEs may shift profit from

one subsidiary to another in order to reduce their overall tax burden, I account for the effect of

host country corporate income tax on the subsidiary GM succession activities. Thus, I utilize the

Tax Rate data from TaxFoundation.org (Farah, Elias, Chakravarty, & Beamish, 2021). Table 7

summarizes the characteristics of these variables.

Table 7: Descriptive Statistics

Variable

Mean

1.Successions

0.25

0.43

1.00

2.Subpar Performance

0.19

0.39

0.01

1.00

3.FDI Inflow (10 billion)

6.10

8.43

0.02

0.01

1.00

4.Competitors (sqrt)

4.98

2.80

0.01

-0.01

0.39

1.00

5.Revenue Flows

0.21

0.31

-0.03

0.02

0.08

0.09

1.00

6.Expatriate Ratio

0.14

0.19

0.03

-0.02

0.08

-0.03

-0.01

1.00

7.WOS

0.71

0.46

0.00

0.01

0.17

0.07

0.08

0.27

1.00

8.Majority Owned IJV

0.11

0.31

0.00

0.01

-0.09

0.00

-0.05

-0.14

-0.55

1.00

9.Equally Owned IJV

0.04

0.20

0.00

-0.01

0.02

-0.02

-0.10

-0.33

-0.08

1.00

10.Minority Owned IJV

0.14

0.35

-0.01

-0.02

-0.14

-0.10

-0.04

-0.17

-0.62

-0.14

-0.09

1.00

11.PCN GM

0.81

0.40

0.02

0.00

0.06

0.09

0.06

0.21

0.38

-0.01

-0.17

-0.39

12.Tenure (log)

0.90

0.69

0.13

-0.07

0.03

0.02

0.04

-0.09

-0.03

0.01

0.00

0.03

13.Subsidiary Age (log)

4.48

0.53

-0.03

-0.23

0.17

0.06

0.04

-0.13

0.03

-0.02

-0.01

14.Subsidiary Size (sqrt)

10.05

10.51

-0.01

-0.02

-0.06

0.13

0.03

-0.40

-0.10

0.04

0.07

0.04

15.Large MNE

0.75

0.43

0.01

-0.06

0.00

0.04

-0.61

-0.11

-0.05

0.03

0.02

16.GDP Growth (%)

5.00

3.96

0.01

-0.01

0.07

0.25

-0.03

-0.15

-0.12

0.10

0.07

0.04

17.Unemployment Rate (%)

5.03

2.49

0.01

0.07

-0.02

-0.21

-0.06

0.09

0.14

-0.04

0.02

-0.17

18.Human Capital Index

2.80

0.56

0.00

0.03

0.36

-0.04

0.06

0.24

0.31

-0.17

-0.05

-0.22

19.Sister Subsidiaries (sqrt)

1.17

0.35

0.03

0.00

0.18

0.16

-0.19

-0.10

-0.13

0.06

0.10

0.06

20.Regional HQs

0.03

0.17

0.00

-0.02

0.10

0.03

-0.05

0.16

0.10

-0.06

-0.04

-0.05

21.Tax Rate

31.82

7.16

-0.02

0.13

0.22

-0.03

0.06

0.01

0.03

-0.04

0.04

-0.02

11.PCN GM

1.00

12.Tenure (log)

-0.08

1.00

13.Subsidiary Age (log)

0.02

0.27

1.00

14.Subsidiary Size (sqrt)

-0.04

0.07

0.15

1.00

15.Large MNE

-0.05

0.03

0.10

0.22

1.00

16.GDP Growth

-0.02

-0.10

0.12

0.02

1.00

17.Unemployment Rate (%)

-0.06

-0.01

-0.03

-0.11

0.03

-0.28

1.00

18.Human Capital Index

0.03

0.02

0.19

-0.23

-0.01

-0.46

0.39

1.00

19.Sister Subsidiaries (sqrt)

-0.07

-0.04

0.02

0.16

0.17

0.18

-0.04

-0.06

1.00

20.Regional HQs

0.04

-0.02

0.02

-0.06

0.07

-0.05

0.00

0.12

0.02

1.00

21.Tax Rate

-0.07

0.00

-0.12

-0.02

-0.03

-0.14

0.34

0.39

0.08

0.04

1.00

Notes: Based on observations in Model 1; Year Dummies and Strategic Motive Dummies are not included in Table 7

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RESULTS AND ROBUSTNESS CHECK

To detect Type 1 errors (Kalnins, 2018), I reran Models 2 to 5 by excluding the

Competitors variable. The sign and magnitude of the interaction term between Subpar

Performance and FDI Inflow remained consistent. It is thus unlikely that multicollinearity is

distorting results.

As the key independent variables are introduced into the models hierarchically, I found

consistent empirical supports to my Hypotheses. Table 8 shows the regression results. In models

1 to 5, all beta coefficients are odds ratios. An odds ratio of 1 means there is no increase in the

odds of an outcome with a given exposure, 2 means there is a 100 percent increase in the odds of

an outcome with a given exposure, and 0.8 means there is a 20 percent decrease in the odds of an

outcome with a given exposure.

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Table 8: Empirical Results for Hypotheses 1–4 (odds ratio)

Model 1

(Baseline)

Model 2

(H1)

Model 3

(H2)

Model 4

(H3)

Model 5

(H4)

Dependent Variable: Successions

Regressors:

Control Variables:

WOS

Reference category

Majority Owned IJV

1.07

(0.755)

1.00

(0.990)

0.99

(0.970)

0.99

(0.973)

0.99

(0.982)

Equally Owned IJV

1.45

(0.329)

1.47

(0.368)

1.49

(0.357)

1.50

(0.342)

1.53

(0.325)

Minority Owned IJV

2.10

(0.015)

2.26

(0.022)

2.26

(0.023)

2.31

(0.019)

2.34

(0.017)

PCN GM

1.26

(0.100)

1.24

(0.170)

1.23

(0.195)

1.24

(0.175)

1.24

(0.165)

Tenure

4.01

(0.000)

3.98

(0.000)

3.99

(0.000)

4.00

(0.000)

4.00

(0.000)

Subsidiary Age

0.70

(0.873)

0.01

(0.091)

0.01

(0.096)

0.00

(0.086)

0.01

(0.108)

Subsidiary Age Squared

0.93

(0.828)

1.92

(0.148)

1.90

(0.155)

1.93

(0.143)

1.84

(0.175)

Subsidiary Size

1.01

(0.218)

1.00

(0.676)

1.00

(0.669)

1.00

(0.637)

1.00

(0.655)

Large MNE

1.13

(0.474)

1.26

(0.234)

1.26

(0.227)

1.29

(0.192)

1.29

(0.194)

GDP Growth

1.01

(0.472)

1.02

(0.172)

1.02

(0.163)

1.02

(0.164)

1.02

(0.156)

Unemployment Rate

0.95

(0.080)

0.95

(0.098)

0.95

(0.114)

0.95

(0.110)

0.95

(0.121)

Human Capital Index

1.74

(0.342)

0.94

(0.928)

0.93

(0.912)

0.91

(0.892)

0.94

(0.924)

Sister Subsidiaries

1.21

(0.396)

1.33

(0.275)

1.36

(0.241)

1.35

(0.241)

1.34

(0.258)

Regional HQs

0.43

(0.080)

0.34

(0.053)

0.32

(0.042)

0.31

(0.037)

0.30

(0.035)

Tax Rate

1.01

(0.275)

1.01

(0.391)

1.01

(0.389)

1.01

(0.372)

1.01

(0.411)

Key Predictors:

Subpar Performance

1.21

(0.049)

1.31

(0.037)

0.90

(0.624)

0.80

(0.301)

0.70

(0.112)

FDI Inflows

1.00

(0.712)

1.01

(0.472)

1.01

(0.472)

1.01

(0.470)

Competitors

0.95

(0.220)

0.94

(0.158)

0.94

(0.156)

0.94

(0.139)

Revenue Flows

1.58

(0.153)

1.61

(0.133)

1.31

(0.410)

1.29

(0.434)

Expatriate Ratio

0.95

(0.886)

0.93

(0.848)

0.94

(0.870)

0.64

(0.253)

Sub Performance × FDI Inflows

0.97

(0.025)

0.97

(0.004)

0.96

(0.003)

0.97

(0.004)

Sub Performance × Competitors

1.09

(0.025)

1.08

(0.040)

1.07

(0.067)

Sub Performance × Rev Flows

2.31

(0.011)

2.35

(0.009)

Sub Performance × Expat Ratio

3.83

(0.015)

Strategic Motives

Yes

Year Dummies

Yes

Observations

9428

7412

Number of Subsidiaries

1,386

1,153

Chi-squared

849.86

673.61

678.69

685.12

691.00

Notes: All coefficients are odds ratios; P values in parentheses; Sub Performance refers to Subpar performance; Rev Flows refers

to Revenue Flows; Expat Ratio refers to Expatriate Ratio

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In Model 1, the coefficient of the Subpar Performance variable is 1.21 and significant (p-

value = .049), supporting the baseline that when the subsidiary’s performance disappoints, the

probability of changing the subsidiary GM will increase. In this case, the odds of GM succession

will increase by a factor of 1.21. From Model 2 onward, the interaction term between Subpar

Performance and the FDI Inflow remains below 1 and highly significant, supporting Hypothesis

1—that GM successions becomes less likely to occur in the poorly performing subsidiary when

the host country receives high FDI inflows. Taking Model 2 as an example, the beta coefficient

of the interaction effect is 0.97 (p-value = .025), suggesting that there will be a three percent

decrease in the odds of subsidiary GM succession with every US$ 10 Billion increase in FDI

inflows. However, findings from Model 3 onward show that when there are many country-of-

origin competitors in the host country, subsidiary GM succession becomes more likely in the

poorly performing subsidiary. In Model 3, for example, the interaction term between Subpar

Performance and Competitors is above 1.09 and highly significant (p-value = .025), suggesting

that even if there was only one country-of-origin competitor in the host country, the odds of GM

succession in the poorly performing subsidiary would increase by a factor of 1.09, strongly

supporting Hypothesis 2.

With respect to the moderation effect of Revenue Flows, I found consistent support for

Hypothesis 3—that GM succession is more likely to occur in the poorly performing subsidiary

when it controls a high portion of MNE revenue. The beta coefficient of the interaction term

between Subpar Performance and Revenue Flows in Model 4 is 2.31 and highly significant (p-

value = .011). In Model 5, the effect is even more significant and the effect size becomes slightly

larger.

Finally, I tested the moderation effect of Expatriate Ratio. The beta coefficient of the

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interaction term between Subpar Performance and Revenue Flows in Model 5 is 3.83 and highly

significant (p-value = .015), lending strong support to Hypothesis 4—that the higher the

expatriate ratio, the more likely the subsidiary GM succession will occur in the poorly

performing subsidiary

. However, in Model 5, the interaction effect between Subpar

Performance and Competitors is only marginally meaningful in a statistical sense (p-value

= .067)

It is important to note that I cannot use the method of Flickinger et al (2016) or of Huang

and Shields (2000) to evaluate the interaction terms as my model is a conditional logit (thus

estimating the marginal effects is not meaningful here as the marginal effects depend on the

value of the fixed effects) (Allison, 2009). However, I can use a recentering approach (Jeong,

Siegel, Chen, & Newey, 2020) by subtracting from every value of Subpar Performance the data

point of interest (i.e., 1 in this case). I then reran Model 5 and found that the coefficient of FDI

Inflow is 0.97 (p-value = .020), the coefficient of Revenue Flows is 2.35 (p-value = .009), and the

coefficient of Expatriate Ratio is 2.43 (p-value = .089). The coefficient of Competitors, however,

was statistically insignificant.

Replacing foreign subsidiary GMs potentially impacts subsidiary performance (Bebenroth

& Froese, 2020; Beechler, Bird, & Taylor, 1998). My qualitative data support this view, as

regional CEO 4 told us: “The sales turnover has increased three-fold after 3 years (since the

change of the subsidiary GM)…and has become profitable.” Also, subsidiaries that receive MNE

As the cultural distance may also influence the staffing strategy of MNEs (Shin et al., 2017), I follow Kogut and

Singh (1988) to calculate the cultural distance between Japan and other host countries by using Hofstede’s indices.

However, my fixed-effects model will drop this variable due to the variable’s time-invariant nature. I thus reran

Model 5 by excluding host countries, of which the cultural distance from Japan is one standard deviation (4.03)

above the mean (12.82). The results of the analysis support all my Hypotheses and are available upon request.

I used non-parametric bootstrapping (100 times) to estimate the standard errors in Model 5, the p-value of the

interaction effect between Subpar Performance and Competitors is .058.

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attention are found to perform better than their peers (Ambos & Birkinshaw, 2010). To explore

whether changing the GM in a poorly performing foreign subsidiary can turn around the

subsidiary’s subpar performance, I trace the performance of the focal foreign subsidiary during

the successor’s tenure. I do so by employing a fixed-effects logit model based on the same model

structure as the full model used in Table 8. Specifically, I tested two dependent variables. The

regression results are reported in Table 9.

Table 9: Empirical Results of the Performance Model

Model 6

(Turnaround)

Model 7

(Continual Profitability)

Dependent Variable:

Subpar Performance

Two-Year Consecutive Gain

Regressors:

Control Variables:

WOS

Reference category

Majority Owned IJV

-2.11

(0.032)

0.92

(0.169)

Equally Owned IJV

-2.65

(0.013)

0.02

(0.985)

Minority Owned IJV

-2.91

(0.049)

1.29

(0.187)

PCN GM

0.91

(0.046)

-0.49

(0.299)

Subsidiary Age

14.76

(0.375)

-12.41

(0.399)

Subsidiary Age Squared

-2.50

(0.273)

2.12

(0.291)

Subsidiary Size

-0.15

(0.000)

0.12

(0.000)

Large MNE

-0.28

(0.591)

-0.50

(0.231)

GDP Growth

0.01

(0.885)

-0.02

(0.551)

Unemployment Rate

0.04

(0.588)

0.12

(0.100)

Human Capital Index

-1.44

(0.439)

0.04

(0.980)

Sister Subsidiaries

0.90

(0.208)

0.25

(0.677)

Regional HQs

0.65

(0.629)

4.20

(0.003)

Tax Rate

-0.02

(0.663)

-0.07

(0.045)

FDI Inflows

-0.05

(0.005)

0.02

(0.264)

Competitors

0.22

(0.119)

-0.22

(0.013)

Revenue Flows

0.29

(0.745)

2.58

(0.001)

Expatriate Ratio

-0.30

(0.709)

-0.79

(0.440)

Key Predictors:

Successor

1.66

(0.000)

-4.26

(0.000)

Successor’s Tenure

-0.03

(0.651)

-0.07

(0.144)

Successor × Successor’s Tenure

-0.45

(0.000)

0.57

(0.000)

Strategic Motives

Yes

Year Dummies

Yes

Observations

1,334

1,882

Number of Subsidiaries

206

276

Chi-squared

224.81

421.03

Notes: P values in the parentheses.

In Model 6, the dependent variable is Subpar Performance and the key independent

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variable is Successor, which is a binary variable, where 1 refers to a successor whose

predecessor left office when the subsidiary performance was poor, and 0 means otherwise. Prior

studies (e.g., Ma & Seidl, 2018; Rowe, Cannella, Rankin, & Gorman, 2005) showed that due to

time compressession diseconomies (Dierickx & Cool, 1989), new leaders need time to make

sense of the problem, develop organization-specific knowledge, configure the executive team,

and take charge. My empirical observations also indicate the importance of time. As noted by

Service manager 1, “At least five years tenure… is a precondition for the GM to really

understand how to do business in this specific context.” When the tenure is too short, it is likely

that I may not observe the performance turn-around. As Sales manager 2 explained: “They gave

the subsidiary general managers too little time to turn around the performance of the

subsidiary.” I therefore investigate the interaction effect between Successor and the Successor’s

Tenure. In Models 7, I change the dependent variable to the consecutive years of gain. It is coded

as a binary variable. If the annual assessment of the subsidiary’s financial performance has

shown a gain for two consecutive years, I code it as 1. I use 0 otherwise.

The interaction term between Successor and the Successor’s Tenure in Model 6 has a beta

coefficient -0.45 and is highly significant (p-value < .001) while the main effect of Successor is

1.66 and highly significant (p-value < .001). The results suggest that new subsidiary GMs whose

predecessor left office when the performance was subpar will likely experience a similar

downturn in subsidiary performance initially. Two mechanisms can explain this phenomenon.

First, given the strong organizational inertia developed during the predecessors’ time in the

subsidiary (Shen & Cannella, 2002b), organizational change would not take place easily in this

case (Hambrick, 2007). Second, if I observe performance too quickly after a succession event, I

am also likely to see a performance downturn (Rowe et al., 2005), as vicious cycle theory holds

106

that successions disrupt routines, thus worsening firm performance (Grusky, 1960).

Nevertheless, the results showed that new GMs, when given time, can turn around the poorly

performing subsidiaries. For ease of interpretation of the estimated interaction effects, I reran

Model 6 by using a fixed-effects linear probability model (LPM) while trimming the

observations that violate the rule

!" ∈ [0,1]

(Damaraju & Makhija, 2018; Horrace & Oaxaca,

2006; Wooldridge, 2016). The results show that new GMs can turn around the poorly performing

subsidiaries after the third year of their tenure. I then reran Model 7 by using LPM and found

that the foreign subsidiaries can even make consecutive years of gain after seven years since the

successors took office.

DISCUSSION

By adopting a mixed-methods methodology, this study develops a more elaborated

framework to systematically explain how strategic contingencies in the context of MNEs

moderate the relationships between poor foreign subsidiary performance and subsidiary GM

change. By integrating a market-based approach with an interdependence-based approach, my

analysis, rooted in a critical realism view (Van de Ven, 2007), showed that the link between

subpar subsidiary performance and subsidiary GM turnover is indeed not as direct as it seems,

but it does not follow the predictions of the performance–power–succession model (Drazin &

Rao, 1999). I found that in the presence of structural factors that can increase the level of MNE

monitoring, the poor performance–GM succession relationship will be strengthened (though

Competitors became only marginally significant in Model 5). In the presence of structural factors

that can enhance the subsidiary GM power, however, the performance-succession relationship

will not be necessarily decreased. Therefore, by examining the roles of MNE attention in the

subsidiary GM changes, my theory, relative to the strategic contingencies perspective, provides a

107

more cohesive understanding of GM successions in the setting of foreign subsidiaries.

Meanwhile, this study improves our knowledge of the broader succession process. Extant

studies tend to use longitudinal models to explore the continual GM change from within the

organization (e.g., Amburgey, Kelly, & Barnett, 1993; Amburgey & Miner, 1992; Beck et al.,

2008). My analysis complements these works, firstly, by accounting for the triggering event that

is likely to set the path-building process in motion (Sydow, Schreyögg, & Koch, 2009); and

secondly, by showing that both the internal structure of organizations and the external

environment can influence organizational decision making (Argote & Greve, 2007) in relation to

GM successions.

Also, I address the call by Bouquet and Birkinshaw (2008a) to explore the issue of

negative headquarters’ attention. Although occasional anecdotal evidence has suggested that

MNE attention may lead to an adverse effect for the subsidiary GM, to the best of my

knowledge, the analysis is among the first to provide a theoretical angle on this issue. To develop

the proper analytic tools, this study utilizes the distinctive MNE context and provides a more

nuanced contextualization (Roth & Kostova, 2003). Although the level of FDI into a host

country may correlate with the presence of country-of-origin competitors in the host country

with respect to subsidiary GM power, the findings showed that these factors can produce

opposite effects on subsidiary GM changes. My empirical observations and theory revealed that

the former can impede MNE monitoring while the latter facilitates MNE monitoring, which then

influence MNEs’ exploitation of hierarchical power.

Furthermore, I theoretically and empirically contribute to the literature on the role of

expatriate deployment in affecting MNEs’ attention. Plourde et al. (2014) found that expatriates

can bring signs of subsidiary growth to the (positive) attention of headquarters. My analysis

108

extends their work by accounting for instances where expatriates can also enable the negative

MNE attention in the subsidiary when the subsidiary encounters difficulties in sustaining a high

subsidiary performance.

At the same time, this study, based on two separate performance measures, presents a more

promising picture of the role of subsidiary GM successors in turning around the poor

performance of an ailing subsidiary. Changing subsidiary GMs is a strong form of managerial

intervention, but the findings here showed the positive economic significance for this kind of

intervention. Therefore, my analysis extends the line of inquiry on the benefit of headquarters’

involvement in general (e.g., Tran, Mahnke, & Ambos, 2010) and the benefit of gaining MNE

attention (from the subsidiary’s perspective) in particular (e.g., Ambos & Birkinshaw, 2010).

Managerial Implications

This study offers several implications relevant to practitioners. First, in an era when the

risk of selecting the wrong candidate is greater than any time in the past (Donatiello, Larcker, &

Tayan, 2018), lack of sufficient information on what the subsidiary is doing may introduce

additional complexities into GM succession processes. As one informant from a large

manufacturing MNE emphasized, “A lot of information we collected (from the subsidiary GM in

the UK) might be wrong, so we have to ensure we have multiple sources of information.” I

therefore suggest that senior MNE managers should be acutely aware of succession resistance.

Two richer sources of information for MNE managers include the country-of-origin competitors

in the host country and the expatriates within the subsidiary.

Second, changing the GM in a poorly performing subsidiary can be an effective turnaround

strategy. However, the successor needs time to take charge. MNE managers can thus be more

confident in using subsidiary GM succession to improve subsidiary performance on one hand,

109

but they also need to be patient on the other because managerial interventions as such will not

lead to immediate payoffs. One informant (i.e., Director 3) told me that they normally give a

“honeymoon period” (which is not simply a probation period) to the subsidiary GM successors.

But many MNEs do not give subsidiary GMs more than three years to turn around their

subsidiaries, as evidenced by the informants from several South Korean MNEs. One informant

used the term “failure trap” to express his dissatisfaction with the HQs’ impatience. A sales

manager from a US MNE similarly noted, “The subsidiary GMs here are only given two to three

years…Immediately upon getting aboard they started to make strategic plans… and then they

spent the other half of the time in planning to return home…This will never work.”

Third and from the subsidiary GM’s perspective, receiving attention from HQs is not

always desirable. To capture the upside potential of gaining MNE attention (Ambos &

Birkinshaw, 2010; Bouquet & Birkinshaw, 2008a), it is critical that subsidiary GMs should also

find ways to avoid the downside risk associated with MNE attention. One possible way to do so,

as suggested by subsidiary GM 6 in Brazil and subsidiary GM 7 in China, is that they should

never “cover up problems” and communicate with the HQs frequently, transparently, and

honestly.

Limitations and Future Research Opportunities

While this study identifies the performance–succession link unique to foreign subsidiary

GMs, it clearly needs further exploration and validation. First, due to the COVID-19 pandemic, I

am not able to have close-up observations on site. I thus hope future work can utilize more

refined qualitative approaches to produce more contextualized descriptions of succession

decision making. Also, as headquarters may increase their monitoring efficacy through

coordination and control (Andersson & Holm, 2010) or by being active in host countries (Vahlne

110

et al., 2012), it would be interesting to delineate how these monitoring mechanisms influence the

process of changing subsidiary GMs. Future studies could also draw on the upper echelons

perspective to explore how other micro-level conditions moderate the factors underlying my

conceptualization. These conditions may include the predecessor and/or the successor’s human

capital, religion, age, time horizon, social status, and origin (Belenzon, Shamshur, & Zarutskie,

2019; Chen & Hambrick, 2012; Damaraju & Makhija, 2018; Flickinger et al., 2016; Georgakakis

& Ruigrok, 2017; Karaevli, 2007; Matta & Beamish, 2008).

Meanwhile, researchers should engage in more comparative cross-cultural studies of this

topic (Bettis, Helfat, & Shaver, 2016). Although my qualitative inquiry probed into the process

of subsidiary GM succession decision making in multiple home and host countries, the

quantitative analysis only focused on a single home country, which may limit the generalizability

of the findings. For example, as the Japanese firms have a preference for group structures both at

home and abroad (Xu, Huang, & Pan, 2019), the effect of country-of-origin competitors on MNE

monitoring might be stronger than that of MNEs from other home countries. But this speculation

might be questionable, because some studies also pointed out that Japanese MNEs are not

necessarily a passive recipient of the home-country “management practice model” (Meardi &

Tóth, 2006; Milkman, 1991). Another limitation is that due to aging populations, finding

sufficient numbers of expatriates is difficult for Japanese MNEs (Beamish & Inkpen, 1998;

Briscoe, Schuler, & Claus, 2009), which may render the change of subsidiary GMs less likely.

Finally, the nature of the employment relationship in Japan (Sakano & Lewin, 1999), the

deinstitutionalization tendency of permanent employment in Japanese companies (Ahmadjian &

Robinson, 2001), and the lack of independent boards (Nakauchi & Wiersema, 2015) may further

complicate the picture.

111

CONCLUSION

There is need for a more cohesive and contextualized theory to inform the change of

subsidiary GMs. During challenging times (e.g., the COVID-19 Pandemic), the need becomes

even more pressing. Adopting a multi-lens approach, this study provided a fresh look at the

relationship between subsidiary performance and subsidiary GM succession. I juxtapose the

empirical evidence and the MNE attention perspective against the strategic contingencies

perspective to demonstrate how the MNE context necessitated a change in the underlying

explanatory mechanism (Roth & Kostova, 2003). While extant literature has held that subsidiary

GMs can accrue power from some strategic configurations to weaken the performance–

succession link, my framework, which is theoretically derived and empirically informed,

demonstrated that senior MNE managers can also exploit the strategic configurations to

strengthen the performance–succession link, which then results in the subsidiary’s positive

economic significances. I conceptualize this as the performance–attention–succession model,

which has the potential to provide a more complete and accurate account of subsidiary GM

successions when subsidiary performance disappoints.

112

APPENDIX

Field Research

Along with the literature review and hypotheses formulation process, I conducted semi-

structured interviews with members of the top management team of each subsidiary. In this

process, I adopted a participant frame of reference in order to gain a better understanding of the

underlying reality through discourse with various stakeholders (Van de Ven, 2007). I remained

less predetermined during all the interviews. The aim is to get the more active data which are

associated with discovery (Dubois & Gadde, 2002). The goal is to strike a balance between rigor,

creativity, and open-mindedness (Eisenhardt & Graebner, 2007). Same as in Essay 1, the

informants are regional CEOs that supervise the subsidiaries, subsidiary general manager

successors, and other members of the top management team who witnessed the succession

process such as director corporate marketing from the HQs, corporate affairs managers based in

the foreign subsidiaries. The reason to have interviews with multiple informants whenever

possible is to triangulate the data (Dubois & Gadde, 2002; Flick, 2014; Schotter & Beamish,

2011). I developed the interview outline based on both the extant succession theories and my

own experience, as I previously worked as a subsidiary GM. Bringing to light this point is

important, as I believe that it is impossible to conceal the researcher’s voice (Suddaby, 2006).

Interviews with members of the top management team of each subsidiary are the main data

source. My secondary data sources, for the purpose of cross-checking information (Yin, 1994),

were GMs’ resumes from LinkedIn, published cases, annual financial reports and media reports.

Immediately after each interview, I prepared the extensive interview notes (Eisenhardt, 1989),

the length of which was three to five pages. Following the approach of Caprar (2011), I

transcribed all recorded interviews in the original language with no immediate translation (if it

113

was not in English) in order to preserve the specificity and meanings. Most of the interviews

were video- or audio-recorded. The length of the recordings was 40 to 150 minutes.

As the exploration unfolds, I gained critical background information and relevant quotes

with respect to the subsidiary GM succession phenomenon. As a result, I believe this better

informed the hypotheses development.

114

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CHAPTER 4: GENERAL MANAGER SUCCESSORS IN LOCAL-MARKET-SEEKING

SUBSIDIARIES OF MNES: A MULTIPLE-CASE ANALYSIS

(ESSAY 3)

INTRODUCTION

Multinational enterprises (MNEs) that excel in managing talent are likely to retain a

competitive edge (Stahl et al., 2012). Yet understanding how to manage employees in foreign

subsidiaries of MNEs has become increasingly critical (Björkman, Fey, & Park, 2007; Collings,

Mellahi, & Cascio, 2019). Among foreign subsidiaries’ human assets, subsidiary general

managers (GMs), whose role is intricate and challenging (Bartlett & Beamish, 2018), are

growing in importance (e.g., Beechler, Bird, & Taylor, 1998; Dowling, Welch, & Schuler, 1999;

O’Brien, Scott, Andersson, Ambos, & Fu, 2019; Schotter & Beamish, 2011). However, despite

the fact that changing key managers will occur at some point within every organization

(Haveman, 1993), decision makers in many MNEs do not know where and how to find the best

subsidiary GM successors (Collings, Scullion, & Morley, 2007). The need for a better

understanding of subsidiary GM change is pressing in this ever-changing climate.

Although a substantial body of literature on international human resource management

(IHRM) exists in general (for a review, see Collings, Scullion, & Dowling, 2009; see also Cooke

et al., 2019), the topic of subsidiary GM succession has only received modest attention (For

exceptions, see Bebenroth & Froese, 2019; Pitcher, Chreim, & Kisfalvi, 2000; Selmer & de

Leon, 1997; Selmer & Luk, 1995). One thematic focus in the existing IHRM literature is the

critical issues faced by MNEs with regard to the employment of parent-country nationals

(PCNs), third-country nationals (TCNs), and host-country nationals (HCNs) in filling key

positions in their subsidiary operations (Colakoglu, Tarique, & Caligiuri, 2009; Scullion &

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Collings, 2006). Arguably, nationality-based staffing decisions mainly reflect the attitude of

MNE decision makers on subsidiary control and coordination (Harzing, 2001) and towards

knowledge creation and transfer (Belderbos & Heijltjes, 2005). For example, researchers argue

that HCNs can better respond to local demands and PCNs are better at integration (Harzing,

2001; Harzing, Pudelko, & Reiche, 2016; O’Donnell, 2000; Tarique, Schuler, & Gong, 2006).

Based on the broader IHRM literature, it thus follows that for foreign subsidiaries with a local-

market-seeking motive (Dunning & Lundan, 2008), an essential succession strategy would be to

use an HCN GM to deal with host country business practices and cultures that may contrast

markedly with those of the home country.

However, the nationality-based terminology may be overly simplistic (Meyer, Li, &

Schotter, 2020; Meyer & Xin, 2018; Rickley, 2019). An HCN GM successor can be either

internally promoted from within the subsidiary, expatriated from the headquarters/other peer

subsidiaries (Thite, Srinivasan, Harvey, & Valk, 2009), or externally hired (Morris, Snell, &

Björkman, 2016). Their capabilities to respond to local market demands and their identifications

with the MNE and the subsidiary may thus vary. Along this line, subsidiary GM succession

decisions might not be only about the candidate’s nationality but also about whether the

candidate comes from outside or inside the organization. However, we still know little about how

MNE decision makers choose internal or external subsidiary GM successors. The lack of

theoretical arguments and empirical evidence is surprising, given that whether to fill job

openings through internal or external hires “is one of the most fundamental staffing decisions

organizations must make” (DeOrtentiis, Van Iddekinge, Ployhart, & Heetderks, 2018: 916).

As “the risk of selecting the wrong candidate is greater than any time in the past”

(Donatiello, Larcker, & Tayan, 2018: 303), potentially putting subsidiary performance and even

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subsidiary survival at stake, there is need for a more granular theory to inform the choice of

subsidiary GM successors. In this paper, I adopt the theory building from cases approach

(Eisenhardt, 1989a; Eisenhardt & Graebner, 2007; Gehman et al., 2018) to address two

questions. First, how are subsidiary GM succession decisions made by MNE decision makers?

Second, how do the succession decisions link to subsidiary performance? By considering the

nationality-based strategy and the origin-based strategy together, this paper aims to yield a more

interpretable and theoretically intriguing pattern than either strategy would show us in isolation

(Johns, 2006; Rousseau & Fried, 2001). To that end, I draw upon bounded reliability (BRel)

(Kano & Verbeke, 2015, 2019; Lumineau & Verbeke, 2016; Verbeke & Greidanus, 2009) as

both the micro-foundation and the theoretical thread throughout the theory elaboration process.

Here BRel refers to economic actors being reliable, but only boundedly so.

Based on theoretical sampling (Eisenhardt, 1989a), the setting is nine wholly owned local-

marketing-seeking foreign subsidiaries of four large manufacturing MNEs. Selecting cases with

the same strategic motive allows me to control for the rival explanations (Luo, 2003) and better

focus on the less-explored succession decision-making process. More importantly, I treat a local-

market-seeking motive as the context analytically rather than descriptively. The underlying logic

is that because human capital is strategic only when it provides value to the firm and does so in a

unique way (i.e., what makes human capital valuable for the firm is its alignment with strategic

orientation) (Chung, Park, Lee, & Kim, 2015; Wright, Coff, & Moliterno, 2014), the findings

To avoid confusion and philosophical pitfalls, it is noteworthy that when inducting theory from cases, I subject

them to critical realist assumptions and take a more pluralist stance. I am aware of the objective and positivist stance

of the approach of Eisenhardt and colleagues (Eisenhardt & Graebner, 2007; Gehman et al., 2018), which is

different from the grounded theory building stemming from the treatises of Glaser and Strauss. But I don’t think that

total objectivity on the part of the researcher is possible. Therefore, I do not conceal the role of the researcher (and

my emic view) and the context (i.e., the strategic motive of the subsidiary in the host country).

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here can be best described as a contextualised explanation. To test the analytical generalizability

of the findings based on the selected cases, I proceeded to interview managers from another 11

foreign subsidiaries, following both the theoretical and literal replication logic (Yin, 1994).

The results reported here are six propositions complementing and challenging the

traditional views of the nationality-based staffing decision. Moderated by the internal-external

origin of the subsidiary GM successor, the empirical evidence shows that using HCN GMs is not

always the best strategy for local-market-seeking subsidiaries. When the HCN GMs are hired

from within the subsidiary, they are more likely to be given to opportunism which makes

provision for self-interest seeking with guile (Williamson, 1981), thus worsening subsidiary

performance. But this is not opportunism ex ante. Rather, it emerges gradually due to the joint

effects of the HCN GMs’ deep understanding of the local business practices, the dual

identification challenge, and the dark side of trust (Anderson & Jap, 2005). I follow Kano and

Verbeke (2015) to call it ex post opportunism as intentional deceit, which is viewed in the

present context as relevant in only well-defined circumstances.

To economize on ex post opportunism, the empirical observations show that MNE decision

makers usually appoint an HCN GM from outside the local-market-seeking subsidiary or

expatriate a PCN subsidiary GM. These solutions, however, may give rise to other facets of

BRel: i.e., divided engagement resulting from the identity-based discordance; and right-minded

regression, i.e., a strong attachment to existing practices due to the force of old habit (Kano &

Verbeke, 2015). The data uncovered that these two BRel facets, rather than ex post opportunism,

are more common reasons for the succession failure, but there exist effective managerial tools to

manage these challenges. Specifically, MNE decision makers use ex ante socialization to ensure

the common goals are in place when the successor takes office, thus economizing on divided

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engagement. To address the challenges posted by right-minded regression, subsidiary GM

successors are encouraged to use balanced local empowerment to motivate local managers in

order to better harness market-seeking opportunities. These safeguards enable MNEs to leverage

the human ability to take initiative and to cooperate, leading to good subsidiary performance.

THEORETICAL BACKGROUND

Nationality-Based Staffing Strategy

Some scholars suggest that when staffing managerial positions in foreign subsidiaries,

MNEs can choose between HCNs, PCNs, and TCNs (Gaur, Delios, & Singh, 2007). Each of

these nationality-based staffing strategies is argued to be associated with a unique set of strategic

purposes (Belderbos & Heijltjes, 2005). Tarique et al. (2006), for example, argue that PCNs may

know more about the MNE’s culture, and thereby can facilitate communication with the

headquarters and align the subsidiary’s operations with the interests of the MNE. The role of

PCNs in controlling the subsidiary on behalf of the headquarters is also gaining increasing

prominence in the literature (Collings et al., 2009; Shin, Hasse, & Schotter, 2017). In contrast,

HCNs are viewed as being more familiar with the host-country environment, and being more

effective in localizing the subsidiary’s operations (Gupta & Govindarajan, 1991).

More recently, researchers have begun to fine-tune the nationality-based staffing

framework by either expanding the category of subsidiary GMs or bringing to the fore the

importance of organizational and environmental contingencies (for a detailed list, see McNulty

& Brewster, 2017). Examples demonstrating the former endeavor include studies on expatriates

of host-country origin (Thite et al., 2009), the local employment of ex-HCNs (Tung & Lazarova,

2006), the localization of expatriates (Tharenou & Harvey, 2006), and the employment of

migrants (Ariss, 2010); whereas the latter is mainly manifested in studies on the moderating

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effects of institutional distance, cultural difference, headquarters and subsidiary characteristics,

and intraorganizational relationships on the utilization of various nationality-based staffing

strategies (e.g., Gaur et al., 2007; Gong, 2003; Peng & Beamish, 2014; Rickley & Karim, 2018;

Schotter & Beamish, 2011a). There are also some studies undertaking these two tasks

simultaneously (e.g., Tarique et al., 2006). Of particular relevance to this study is the work of

Chung et al. (2015), which proposes a strategic human resource alignment framework. The

authors found that HCNs can more effectively maximize the performance-enhancing potential of

a local-market-seeking strategy, while also finding positive utility functions of PCNs in export-

oriented subsidiaries.

This research agenda has been established as one of the cornerstones of the field of IHRM

(Thomas, Lazarova, & Inkson, 2005). But as noted earlier, the subsidiary GM successors’

nationality only tells half of the story, and the internal-external origin of GM successors has been

largely neglected in IHRM. In contrast, the origin-based succession strategy has become a

prominent issue on the agenda in strategic leadership research. A brief overview of this body of

work follows.

Internal Versus External Successor Type

As the selection of a new GM offers a great opportunity for decision makers to align their

organization with the environment and with the interests of the board of directors (Friedman,

2017; O’Brien et al., 2019; Ocasio, 1999), GM successor origin represents a well-researched

topic in the field of strategic leadership. Considerable evidence exists that decisions on whether

the new GM comes from outside or inside the organization can impact organizational

performance significantly (Finkelstein, Hambrick, & Cannella, 2009). The underlying

mechanisms of this impact are threefold. First, outsiders are normally viewed as change agents

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such that external successors tend to pursue paths of strategic change (Wiersema, 1992). They

bring new ties to the environment, new competencies and skills, and fresh strategic perspectives

(Kesner & Sebora, 1994; Schepker, Kim, Patel, Thatcher, & Campion, 2017). But at the same

time, outsiders often find it harder to get support from other executives within organizations

(Zhang & Rajagopalan, 2004). In contrast, internal promotion may indicate the board’s desire to

maintain the current strategic thrust (Finkelstein et al., 2009). Second, insiders have more

established social ties to employees (Berns & Klarner, 2017) and have successfully managed

political coalitions (Wiersema, 1992). Insiders possess more firm-specific knowledge and are

more socialized into the organization’s culture (Schepker et al., 2017). These superior

relationships, information, and power bases imply that insiders, relative to external successors,

can leverage organizational resources more effectively. Third, to the extent that the board has

more detailed information about insider successors, information asymmetry—and thereby the

principal–agent problem—will be less severe (Zajac, 1990).

These mechanisms have also been successfully applied to the study of other types of

executive roles. Of particular interest is the study of DeOrtentiis et al. (2018) on subunit

managers in domestic firms. Their results showed that internal candidates demanded lower

starting salaries, even though their performance ratings were higher and their probability of

promotion was lower. Consequently, the authors suggested that firms staff the subunit manager

position with internal candidates whenever possible.

These and related studies add greatly to our knowledge of GM successor’s origin.

However, insights from this body of work might be too coarse to be directly applicable to foreign

subsidiary GM successions in that the role of foreign subsidiary GMs is more intricate than the

role of managers in a domestic setting (Bartlett & Beamish, 2018). O’Brien et al. (2019) note

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that there are at least three types of responsibilities that foreign subsidiary GMs must assume:

enabling embeddedness in the host country, facilitating adaptability in the subsidiary, and

championing alternatives within the MNE. Meanwhile, in the setting of MNEs there is a notion

of nestedness of agency relationships (Hoenen & Kostova, 2015). There are two types of insider

GM successors, one is from within the subsidiary and the other expatriated from within the MNE

but outside the subsidiary. Therefore, the subsidiary GM successors might be closer to the

subsidiary or closer to the HQs depending on where they are from.

METHODS

The foregoing elaboration of theoretical underpinnings enabled me to formulate a

preliminary analytical framework. But this framework was not fully stipulated and was subject to

future refinement. The initial process can be best described as “abductive” (Gehman et al., 2018)

because the propositions formulated then were primarily based on both my subjective view on

subsidiary GM successions and were derived from the prior literature. Given the iterative nature

of explanation-building (Yin, 1994), I constantly went back and forth between theory and data.

As a result, the propositions evolved, which, in turn, directed my search for new theories as well

as new empirical observations. In this continuous process of systematic combining (Dubois &

Gadde, 2002) or progressive focusing (Sinkovics & Alfoldi, 2012), I developed theoretical

arguments from cases (Eisenhardt, 1989a; Eisenhardt & Graebner, 2007).

Research Setting

I adopt a multiple-case design and treat each case as an experiment (Yin, 1994). I then use

the series of cases, collected in a theoretical sampling manner (Eisenhardt, 1989a), to test the

observations. The underlying logic, therefore, is literal replication within groups of cases and

theoretical replication across groups of cases (Yin, 1994). The core interest of this approach, as

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noted by Eisenhardt et al. (2016), is to enable meaningful comparisons. My unit of analysis is

nine wholly-owned foreign subsidiaries with a local-market-seeking motive. These subsidiaries

are from four large, established manufacturing MNEs that are technical and market leaders. I

named these subsidiaries and their MNEs for their primary technological area (e.g., Electronics).

The characteristics of these foreign subsidiaries and the MNEs are shown in Table 10.

TABLE 10: Descriptions of Manufacturing MNEs

Subsidiary

MNE

Home

Country

Host

Country

Number of

Employees

(MNE)

Number of

Employees

(Subsidiary)

Number of

Informants

Water A

Water

Israel

China

>500

~100

Water B

Water

Israel

India

>500

~30

Water C

Water

Israel

Brazil

>500

~90

Agriculture A

Agriculture

Israel

China

>500

~200

Agriculture B

Agriculture

Israel

Brazil

>500

~150

Paper A

Paper

Singapore

China

>500

Paper B

Paper

Singapore

China

>500

Electronics A

Electronics

China

>500

~600

Electronics B

Electronics

China

Pakistan

>500

Note: In line with the Letter of Information, the number of employees illustrated in this table is intended to be vague in

order to keep the MNEs unidentifiable.

I chose these foreign subsidiaries for three reasons. First, for foreign subsidiaries whose

mandate portfolios are primarily local-market-seeking, the need to be responsive to local

demands will be higher (Benito, 2015; Dunning & Lundan, 2008), which may increase the

importance of subsidiary GM successors’ local knowledge and networks. Yet, for these same

subsidiaries, their dependency upon resource support from the MNEs may also increase in order

to overcome the liability of foreignness (Lee, Chung, & Beamish, 2019). This suggests that the

subsidiary GM successors’ internal relationship with the MNEs will also be critical. Therefore,

these are precisely the research conditions that may hinge on both the nationality-based staffing

strategy and the origin-based succession strategy. Second, as the strategic motives contextualize

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the role of subsidiary GM successors

, singling out one motive enables me to partial out

variations that are nonessential to this inquiry and consequently to focus attention on the

variation of interest (Gehman et al., 2018; Luo, 2003). Third, given the multiple sources of

identity in the context of international joint ventures (IJVs) (Salk & Shenkar, 2001), the

organizational culture and the succession decisions may emerge differently in IJVs vis-à-vis in

wholly owned subsidiaries. The unique IJV microprocesses, albeit intriguing, is not essential to

my inquiry here and thus should be patriated out.

Data Sources and Analysis Process

Because I collected and analyzed data simultaneously (i.e., constant comparison)

(Eisenhardt, 1989a), I report data sources and the data analysis process in the same subsection as

well. But I present them in a sequential manner here only for the sake of clarity. Meanwhile, to

make the researcher voice more explicit here (Bansal & Corley, 2011), it should be noted that I

previously worked as a foreign subsidiary GM (an HCN GM who was internally promoted from

within the subsidiary). I therefore developed the preliminary interview outline not only based on

the prior literature, but also on my personal experiences (i.e., subjectivist worldview).

Mentioning this is important, as I believe that, though grounded in extant theory, what I will

observe is also a function of who I am and what I hope to see (Suddaby, 2006). In this sense,

therefore, the philosophical underpinning of my methodology is not positivism, but critical

realism (Van de Ven, 2007; Welch, Piekkari, Plakoyiannaki, & Paavilainen-Mäntymäki, 2011).

As this essay is part of a larger research program on foreign subsidiary GM successions, it should be noted that I

conducted many other interviews with subsidiaries that are not local-market-seeking. Compared with those

interviews that are excluded from this study, I can conclude that the strategic motive can significantly influence the

succession decision making. Therefore, controlling for this extraneous variation is warranted. Nevertheless, I also

acknowledge that the local embeddedness can be critical to some subsidiaries with other strategic motives.

Therefore, I encourage future research to test the analytical power of my model in the settings other than local-

market-seeking subsidiaries.

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To gain access to the MNEs, I relied on my personal network of professionals working in

these MNEs. I conducted interviews with members of the top management team of each

subsidiary and the HQs. Given my decade long subsidiary GM experiences, I intentionally

remained passive and less predetermined during all the interviews in order to come across the

“active” data which is associated with discovery (Dubois & Gadde, 2002). My informants are

Vice Presidents, Regional CEOs, subsidiary GMs, and other members of the top management

team who were well-positioned to offer detailed knowledge of the succession process such as

director corporate marketing from the HQs, sales manager and corporate affairs managers in the

foreign subsidiaries. Following prior research (e.g., Gilbert, 2005; Schotter & Beamish, 2011b),

the rationale to involve multiple informants is to triangulate the interview data (Dubois & Gadde,

2002; Flick, 2014). Meanwhile, to motivate informants’ accuracy, I promised confidentiality.

Same as in the previous essays, the main data source is semi-structured interviews, which

are deemed suitable for interviewing managers who cannot be reached on many separate

occasions (Bernard, 2000). I used the secondary sources such as annual reports, published cases,

media reports, and subsidiary GM resumes from LinkedIn to cross-check information. The

information about subsidiary performance is based on the informants’ subjective assessments

(i.e., comparing the post-succession performance to their expectations) (Slangen & Hennart,

2008). I do so in order to ensure the dependent variable is contextually sensitive (Johns, 2006),

as different informants define unsatisfactory subsidiary performance differently and these

managers (e.g., Regional CEOs of Electronics, Water, and Agriculture; Directors of Paper and

Agriculture, among others) told me that they have to tease out the factors (e.g., time trend,

macro-economy, political changes) that influence subsidiary performance but have nothing to do

with the succession events. Also, where possible, I use the secondary sources to verify the

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performance information. I also had one interview with a global leadership expert in order to

investigate the subsidiary GM succession issues from the outsider perspective.

I took copious notes during the interviews. Immediately after each interview, I then

prepared the detailed and extensive interview notes in the form of an electronic document,

following the “24-hour rule” (Eisenhardt, 1989b). The length of each final note was three to five

pages. I also video- or audio-recorded most of the interviews, the length of which was 40 to 150

minutes. Following the approach of Caprar (2011), I transcribed all recorded interviews in the

original language with no immediate translation (if it was not in English) in order to preserve the

specificity and meanings. In total, I have prepared over 400 pages of transcriptions, and over 110

pages of notes in the form of an electric document. Similar to prior research (e.g., Gilbert, 2005),

I also conducted nine follow-on telephone interviews (20-40 minutes each) to further expand on

the specific research questions that were not completely emerged during the initial interviews.

The purpose of this interview data collection stage is to generate a more parsimonious theory.

Along with the fluid and nonlinear process, I conducted additional interviews with

managers from 11 other subsidiaries to assess the analytical power and the external validity of

my model (Yin, 1994). Table 11 describes the data sources. Finally, as a validating procedure, I

discussed the initial findings with my informants to evaluate the accuracy of the study (i.e.,

member checking) (Yin, 1994). More than 90 percent of informants during the follow-on

interviews told me that my conclusions were entirely accurate. For instance, the Regional CEO

of Agriculture responded, “I must tell you that from my experience, all the points that you

mentioned, I really connected.”

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Table 11: Sources of Data

Interviews

Secondary Documents

Successions

Subsidiary

MNE

Subsidiary

Total

Number

Examples

Number

Water A

Resumes on

Water B

1(1)

2(1)

Resumes on

LinkedIn; D&B

Reports

Water C

Resumes on

LinkedIn; D&B

Reports

Agriculture A

3(1)

Resumes on

Agriculture B

2(1)

Resumes on

LinkedIn; D&B

Reports

Paper A

3(1)

4(1)

Resumes on

LinkedIn; Media

Reports

Paper B

Resumes on

LinkedIn; Media

Reports

Electronics A

1(1)

2(1)

Resumes on

LinkedIn; Annual

Reports

Electronics B

1(1)

2(1)

Resumes on

LinkedIn; Annual

Reports

Compared

Subsidiary

11(3)

Media reports;

Resumes on

LinkedIn;

Published Cases

Global

Leadership

Expert

n.a.

Total

16(3)

20(6)

36(9)

Note: The follow-on interviews are shown in parentheses; The follow-on interview with Agriculture B is done

through E-email instead of virtual meeting; The number of successions is the number of events the informants

discussed about in details during the interviews.

Following the coding approach of Maznevski and Chudoba (2000), I have, in a manner of

“analytic induction” (Suddaby, 2006), tentatively coded the categories of variables according to

the research template. I do so in order to frame the study within the context of the extant theories

135

(Eisenhardt & Graebner, 2007), as a preparation for reconceptualization. This initial template

was largely guided by the micro-foundations underpinning the issue of agency problems within

MNEs (Hoenen & Kostova, 2015), i.e., bounded rationality and opportunism. However, my data

gradually showed that the assumption of opportunism is only a situational occurrence. Instead, I

found the emergence of various facets of BRel (Kano & Verbeke, 2015), which turned out to be

the “central characters” cohering into the story (Pratt, 2009). This then inspired a new round of

literature review.

Subsequently, following the iterative and dynamic approach (Gehman et al., 2018), my

research questions were refined and I developed a new set of formally stated observations.

Grounding the research question in reality is a crucial step of problem formulation process (Van

de Ven, 2007). Along with the continuous modifying and updating processes, my direction for

data collection also changed accordingly (Dubois & Gadde, 2002). As the study progressed, I

redirected my focus to the subtleties of BRel expressions so as to draw on the complete sources

of data and encompass all nuances. In this process, I found three particular facets of BRel

informed by the qualitative data

. I also discerned surprising relationships among these facets of

BRel, which are not addressed by existing theoretical and empirical work. I then reduced fuzzy

categories into fewer and clearer structures, and wove into the model an emergent category of

variables I call economizing mechanisms. The revealed BRel (and the inter-links) and the

economizing mechanisms (or lack thereof) jointly inform succession decision making and link to

subsidiary performance. These larger patterns unveil complex social processes, thus enabling the

theory elaboration.

In the next section, I present these formal observations in the form of propositions and

While Kano and Verbeke (2015) also discussed about other dimensions of BRel, my data did not reveal ex-ante

opportunism and benevolent preference reversal.

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incorporate a set of relevant literatures (Eisenhardt, 1989a). Consistent with critical realism, I

adopt the process tracing technique to formulate the propositions (Welch et al., 2011), which

involves a careful construction of causal chains of events. Each chain of causal events is

regarded as a unique causal pathway.

RESULTS

Insider HCNs and Ex Post Opportunism

As mentioned previously, extant research on the nationality of subsidiary managers has

held that HCNs are more familiar with the host-country environment and can more effectively

maximize the performance-enhancing potential of a local-market-seeking strategy (Chung et al.,

2015; Gupta & Govindarajan, 1991). Meanwhile in the field of strategic leadership, recent works

on the origin of subunit manager successors showed that as internal candidates have higher

performance ratings, it is sensible to staff the subunit manager position with internal candidates

(DeOrtentiis et al., 2018). Based on these parallel literatures, therefore, it follows that for local-

market-seeking subsidiaries, the logical succession strategy is to appoint an HCN GM who is

promoted from within the subsidiary (hereafter insider HCN GMs). This is also the preliminary

proposition I tentatively formulated before data collection.

My empirical observations, however, indicate a contrasting view. Given that the HCN

perspective is not homogenous (Caligiuri & Bonache, 2016), and agency relationships inside

MNEs are multi-tiered (Ambos, Kunisch, Leicht-Deobald, & Steinberg, 2019), on certain

occasions, the use of HCN subsidiary GM successors was actually regarded by MNE decision

makers as the worst succession strategy. Although HCN subsidiary GM successors are familiar

with the host country environment, it does not ensure that these successors will necessarily align

the subsidiary’s operations with the MNE’s best interest. When the HCN subsidiary GM

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successor is from within the subsidiary, the successor’s familiarity with the local market and

with the subsidiary operations, coupled with the role stress in the face of conflicting goals, and

the reduced alertness of the MNE decision makers, can lead to ex post opportunism. As a result,

the subsidiary performance is less likely to be satisfactory. In formal terms,

Proposition 1: Internally promoting an HCN GM successor from within the local-market-

seeking subsidiary may lead to ex post opportunism that renders subsidiary performance

unsatisfactory.

The empirical evidence is shown in Table 12. Some subsidiaries in my observations have

never used this specific type of candidates for the reasons such as “lack of trust” or “lack of

qualified international managers”. I thus corroborated the qualitative assessments with

additional interviews with managers that have worked with insider HCN subsidiary GM

successors (from the group I call compared subsidiaries). I also included the opinion from a

global leadership expert.

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Table 12: Insider HCN GMs and Ex Post Opportunism

Subsidiary

Successor

Replication

Deployed

Insider

HCN GMs

Ex Post

Opportunism is

the Concern

Subsidiary

Performance

Examples

Water A

n.a.

Theoretical

Yes

n.a.

Regional CEO: "If possible, I would prefer to

use local GMs…But it takes time to know the

local GM…And we had problems in Peru

before, luckily we found the (insider HCN)

GM's fraud issue at the last minute."

Water B

n.a.

Theoretical

Yes

n.a.

Subsidiary GM: "People here are not very

trustworthy...I fired the (HCN) business

manager 3 years ago though he was very

capable."

Water C

n.a.

Agriculture A

GM 2

Literal

Yes

Unsatisfactory

Subsidiary GM: "Here is a code of conduct

issue, regardless of his capability. The

predecessor opened his own company while

working as the GM here. He then used his

local networks and teamed up with several of

our employees to develop business for his

own company and then sold products to our

subsidiary."

Regional CEO: "We had 42 people in the

subsidiary…We had to replace 35 people

there."

Agriculture B

n.a.

Theoretical

n.a.

Director: "The predecessor and successor are

both external hires…I haven’t seen

disloyalties."

Paper A

n.a.

Theoretical

Yes

n.a.

Corporate Affairs Manager: "We don’t

appoint (HCN) subsidiary GMs from within

the factory nowadays, because we are

concerned about the entrenchment and office

politics the internal candidate might create."

Paper B

n.a.

139

Electronics A

GM2

Literal

Yes

Unsatisfactory

Deputy GM: "The (insider HCN) predecessor

didn’t go to the office often, and was involved

in many fraud issues, which remained

unnoticed until I was expatriated to the

subsidiary."

Electronics B

n.a.

Theoretical

Yes

n.a.

Regional CEO: "We don’t have many

qualified international managers."

Compared

Subsidiary 1

GM 1

Literal

Yes

Unsatisfactory

HR: "The (insider HCN) predecessor GM is

too local, he had some under the table deals

that the HQs suspected but had no proof."

Compared

Subsidiary 2

The most

recent

predecessor

Literal

Yes

Unsatisfactory

Sales Manager: "At the beginning, the

performance was good. But the (insider HCN)

GM started to make the same problems…He

left the subsidiary prematurely, leaving again

a huge amount of inventories in the

distributors’ warehouse...Even worse than the

predecessor."

Compared

Subsidiary 4

GM 3

Literal

Yes

Satisfactory

Subsidiary GM: "I was then ‘informally’

trained by the HQs (for two years) to become

the GM successor candidate."

Compared

Subsidiary 8

GM 1

Literal

Yes

Unsatisfactory

Sales Director: "At the outset, the GM was

very trustworthy. But over time, as the

business grew very quickly, the GM started to

build his empire and began to fight against the

requirement from the HQs…It is a trust decay

process."

Expert

n.a.

Theoretical

Yes

n.a.

Expert: "According to my experiences, MNEs

nowadays still prefer to use expatriate GMs in

China as they still don’t trust HCNs."

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Surprisingly, I found that in most subsidiaries that have previously ever used insider HCN

GMs, the subsidiary performance deteriorated during the tenure of the GMs. Why does the use of

insider HCN GM successors lead to unsatisfactory subsidiary performance? I concluded that

there are three reasons

. First, the primary location of employment may explain the differences

in organizational commitment (cf. Banai & Reisel, 1993). The organizational commitment here

refers to the psychological identification with the organization (Roth & O’Donnell, 1996). But

along with the internal selection and promotion process, the subsidiary GM may gradually

develop dual identifications with both the subsidiary and the MNE (Vora & Kostova, 2007), as

these GMs are chosen by and get closer to the MNE decision makers during the promotion

process. But for these insider GM successors, a sense of internal conflict may arise in the face of

conflicting goals. One dysfunctional effect of the role stress is that these GMs may lose a sense

of affiliation with both entities (Gregersen & Black, 1992; Vora, Kostova, & Roth, 2007). Thus,

agency issues may loom large. The insider HCN GMs are also more able to behave

opportunistically given their entrenchment in the subsidiary. Therefore, as the informant from

Paper A explained, “We don’t appoint (HCN) subsidiary GM from within the factory nowadays,

because we are concerned about the entrenchment and office politics the internal candidate

might create.” By politics, I believe that he meant the “activities taken within organizations to

acquire, develop, and use power and other resources to obtain one’s preferred outcomes”

(Pfeffer, 1981: 7). These outcomes, however, might not necessarily comply with directives of the

Given the small sample, I concur that what I have observed here might not be perceived as a solid relationship.

However, the “statistical” power argument does not apply to the methodology and the nature of the data in the

present context (Yin, 1994). Although I stopped collecting interview data when I believe that the “category

saturation” was achieved (when new interviews yielded little new information), I can still make some tentative

inferences, and my goal is to ensure the “analytical” power. This orienting principle underlies the whole theory

elaboration process.

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MNE.

Second, being successfully promoted from within the subsidiary may indicate that the new

subsidiary GM has proven capabilities in dealing with environmental contingencies, which has

enabled the GM to gain trust from the MNE decision makers (Mayer, Davis, & Schoorman,

1995). Here, trust refers to the trustor’s (i.e., MNE decision maker’s) psychological state

comprising the willingness to be vulnerable based on positive expectations of the behavior of the

trustee (i.e., subsidiary GM successor) (Rousseau, Sitkin, Burt, & Camerer, 1998). However,

there is a dark side of trust (Kano & Verbeke, 2015). As the deputy manager of Electronics A

stressed, the “fraud issue” remained unnoticed for years. In retrospect after several succession

failures, the Regional CEO of Agriculture told us, “Even though the GMs are very capable in

terms of experience (in the field), they will not be fully loyal to you.” In a follow-on interview,

this Regional CEO further noted, “The (promoted) GM was a great salesman, bright, very very

good, but when he became a manager, because I cannot control him 24 hours a day, seven days

a week, then he made me disappointed…He didn’t expand his mind to the managerial level.”

This suggests that: first, the initial trust given to the insider successor can reduce the alertness

needed (Verbeke & Greidanus, 2009); second, when a breach in trust is suspected, it is hard to

prove (Anderson & Jap, 2005); and third, the trust dynamic has potential for contraction

(Rousseau et al., 1998).

Furthermore, deep understanding of the local practices and the subsidiary operations is a

double-edged sword in a sense that, as suggested by extant literature, it can enable the GM to

bolster subsidiary performance, but as suggested by the data, it can also paradoxically enable the

subsidiary GM to better pursue self-interest with deceitfulness. A telling example is given by the

informant from Agriculture A, who noted, “Here is a code of conduct issue. The (insider HCN)

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predecessor established his own company while working as the GM here. He then used his local

networks and teamed up with several of our employees to develop business for his own company

and then sold products to our subsidiary.” I summarized that the successor has the needed

embeddedness to do so given his local knowledge and networks; the authority to do so given his

rank in the hierarchy; and the latitude to do so given his established social ties to local

employees (Berns & Klarner, 2017).

I proceeded to assess the validity of the proposition by interviewing informants from other

local-market-seeking subsidiaries. The foregoing behavioral pattern was found in most cases. In

the compared subsidiary 1, for example, there were “under the table deals (by GM 1), which the

HQs suspected but had no proof.” I then asked the HR manager why GM 1 did that. She

explained: “He actually did not want to be the GM.” I concluded that this attitude is clearly

symptomatic of the role stress. Similarly, as witnessed by the informants from the compared

subsidiaries 2 and 8, the “trust decay” only became recognizable gradually. The only exception I

found is the insider GM 3 of the compared subsidiary 4, who did not demonstrate ex post

opportunism. He successfully turned around the subsidiary performance. The GM did not

experience the role stress because the decision makers in the HQs had spent two years in the

candidate’s leadership development (albeit informally) prior to his promotion, in order to elicit

the GM’s dual organizational identifications.

Expatriated HCNs and Economizing on Opportunism

The above findings thus lead to the next question, how do MNE decision makers impose

limits that assure localization of the operations by the HCN subsidiary GM is consistent with the

MNE’s best interests? Prior research argued that succession decisions that are based on utilizing

the most capable managers are different from the choices based on reducing transaction costs

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(Tan & Mahoney, 2006). Then, could the MNE decision makers find the most capable subsidiary

GMs who can also behave less opportunistically? I found that to achieve this goal, some MNEs

expatriated HCN GMs from within the MNE but outside the subsidiary.

Although the IHRM literature suggested that establishing criteria for expatriate selection

remains problematic (Dowling et al., 1999), and strategic leadership research reminded us that

the choice of an outsider as a new leader is a highly charged decision, as it may violate implicit

deals with some internal movers (Finkelstein et al., 2009), the empirical observations indicated

that the expatriated HCN subsidiary GMs’ strong identification with the MNE significantly

reduced their willingness to engage in ex post opportunism. As a result, these GMs’ stock of

local knowledge was mainly used to find opportunities for increased local embeddedness rather

than to serve the GMs’ self-interest. Formally,

Proposition 2: Expatriating an HCN GM successor from within the MNE to the local-

market-seeking subsidiary reduces ex post opportunism.

The data indicated that the expatriated HCN GMs, such as those in Paper A and B, are

close to MNE decision makers, which is consistent with prior studies on expatriation (e.g., Ishii,

2012; Michailova et al., 2016; Williams, Colovic, & Zhu, 2017). They have worked for the MNE

for many years in various subsidiaries and business sectors. This pattern shows that they have

strong desire to maintain membership and continue affiliation in the MNE, which is an

embodiment of loyalty (Banai & Reisel, 1993). Both the director and the corporate

communication manager of Paper call these expatriated HCN GMs “old boys” and “fire

captains”, implying that these GMs are not only trustworthy but also capable of taking risks in

confronting unanticipated environmental challenges. The corporate affairs manager from Paper

B brought to light the underlying reason, “The expatriated HCN GM can take some risks,

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because he knows that even if he makes some mistakes in this process, the president will

understand him.” Moreover, these subsidiary GMs are very committed, as pointed out by the

corporate communication manager of Paper, “The GM (16) is always the last one to leave the

subsidiary.”

Meanwhile, the data indicated that these HCN expatriates do not necessarily divorce

themselves socially from local people in the subsidiary, which seems inconsistent with many

writings on the “expatriate syndromes” (Harvey & Moeller, 2009; March, 1992; Mesmer-

Magnus & Viswesvaran, 2008). As suggested by the following quote from the informant in

Paper B, “The GM (16) always likes to communicate with all levels of employees.” Similarly, the

corporate communication manager of Paper told us, “The GM (15) in Paper A proposed the

‘care and love of the employees’ initiative… greatly improved the employees’ morale and the

GM’s credibility.” My explanation is that both the “linguistic ability” and the deep appreciation

of the host country culture can render these expatriated HCN GMs very capable of effective

communication with local people, fostering organizational identification (Ishii, 2012) and in-

group favoritism (Olsen & Martins, 2009). Meanwhile, because effective communication with

the subsidiary is instrumental in ensuring the implementation of the local-market-seeking

strategy, getting socially closer to the subsidiary can in effect allow the expatriated HCN GMs to

better fulfill their commitment to the MNE. In this sense, the subsidiary identification can be best

described as nested within the MNE. As a result, the risk of role conflict will be low (Vora &

Kostova, 2007).

Therefore, these expatriated HCN subsidiary GMs can overcome the dual identification

challenge, effectively address ex post opportunism, and thus render the unsatisfactory subsidiary

performance as less likely. However, resource constraints clearly come into play here (Sonkova,

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2015). Indeed, expatriates are often in short supply (Beamish & Inkpen, 1998; Collings,

Scullion, & Morley, 2007), let alone the HCN expatriates who have prolonged exposure to the

particular MNE’s setting. Thus, I found that a more common approach adopted by the MNEs is

to externally hire HCN subsidiary GM successors, the strategy to which I now turn.

Outsider HCNs and Divided Engagement

As mentioned earlier, an outsider may lack firm-specific human capital (Chan, 2006).

Moreover, it is likely that there exists information asymmetry between the firm and the outsider

candidate, which may lead to a less-than-optimal selection (i.e., adverse selection) (Zhang,

2008). Similarly, as noted by DeOrtentiis et al. (2018), using external hires at the sub-unit level

may lead to poor person-job/organization fit with respect to skills and abilities. My empirical

observations, however, are startling in that adverse selection was not a major concern for MNE

decision makers when deploying outsider HCNs. There was only one exception that

demonstrated the adverse selection problem, that is, the predecessor GM of the compared

subsidiary 6. However, due to the saliency of the GM role, it seems relatively easier for MNE

decision makers to identify the GM’s lack of needed skills and abilities, and thus quickly fix it.

In the case of the compared subsidiary 6, for instance, the predecessor had a very short tenure

and was fired immediately after a more appropriate candidate was found. Furthermore, because

the outsider HCN GMs do not have the entrenchment problem and their activities are under

scrutiny of the MNE decision makers and the subordinates, I found that they are also less likely

to engage in ex post opportunism in the form of moral hazards. But some other behavioral

problems emerged, to which I now turn.

After the new comers take office, their managerial attention is primarily focused on

subsidiary-level goals that are spelled out by formal managerial roles, well-established job

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descriptions, or provisions in the contractual agreement. As time goes by, the outsider HCN

subsidiary GMs started to gain some exposure to the MNE’s overall mission and goals which are

often embedded (implicitly) in the corporate culture, i.e., the pattern of beliefs and expectations

shared by the members of the MNEs (Stahl & Tung, 2015). But some of these GMs took issue

with the mission and goals. This is evidenced by the following quote from the corporate

communication manager of Paper, “We have well-established managerial procedures, and the

external candidate thought, OK, let me just follow them. But in fact, we have a set of implicit

rules to follow...It is frustrating.” The same frustration is found in the case of Agriculture B,

“The GM used to be an important manager of ST (a related MNE, so the GM believes that he fits

with the job description). But we need to be hands-on. Different from an exact job description

that tells you need to do just this and that here, we need to do lots of things.” This is

problematic, because subsidiary GMs, by virtue of this position, hold multiple roles (Vora et al.,

2007). Some expectations do come from the subsidiary, but there are also expectations from the

MNE as a whole. Failing to fulfill the MNEs’ expectations will lead to what Kano and Verbeke

(2015) termed divided engagement. In formal terms,

Proposition 3: Externally hiring an HCN GM successor for the local-market-seeking

subsidiary may lead to divided engagement that renders subsidiary performance unsatisfactory.

As just mentioned, while I concur the development of the overall commitment to the MNE

can be difficult (García-Cabrera & García-Soto, 2012), the opportunism assumption is not

necessary here. I found that the use of external hires, due to its high charged nature (Finkelstein

et al., 2009), can increase, not decrease, the vigilance of the MNE decision makers. Because new

beginnings are powerful incentives to establish or change the way work is accomplished

(Feldman, 2000), MNE decision makers tend to pay more attention to the new-comer, which

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have a characteristic of higher-level learning (Saka-Helmhout, 2010). For instance, as noted by

the corporate affairs manager of Paper B: “The predecessor had a huge pressure to deliver the

budget under the (daily) supervision of the president.” At the same time, without local political

coalitions in place, the subsidiary employees would also function as monitoring apparatus,

providing “credible information” about the new-comer (Rousseau et al., 1998). As the corporate

communication manager of Paper explained, “There are many monitoring apparatuses around

the external hire. Sometimes, when the GM said something to his subordinates, the subordinates

would immediately send emails to the president…Even the secretary is not his guy.” In this case,

therefore, pursuing self-interest with guile is hard for the outsider HCN GM (Eisenhardt, 1989c).

Although the opportunism here is curbed, however, some outsider HCN GMs still do not

always perform to the expectations of the MNEs due to role ambiguity. For example, the

corporate affairs manager of Paper B noted: “The predecessor was focused too much on

financial numbers, resulting in problems on customers’ end and on our ends…Although the

company only started operation since 2012, and it started to be profitable since 2013. The

president’s expectation was higher than the real performance...This is an important market.”

The director of Paper explained the president’s expectation to us, “Our president hopes they

exhausted all possible paths to grow...This is our culture.” Somewhat similar evidence was given

by the deputy GM of Electronics A: “The GM is too much detail-oriented, which inevitability

hinders him to engage in holistic strategic thinking. He is from a very centralized MNE, which is

different from ours…I hope he can be a business owner, not a manager.” The interview data

showed that these outsider HCN subsidiary GMs kept following the contractual norms to

develop local business, and both Paper B and Electronics A returned to profitability, which

demonstrated the GMs’ proven capabilities (and thus no adverse selection). But role ambiguity

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can eventually lead to the subsidiary GMs’ unilateral commitment to the subsidiary and lack of

commitment to the MNE as a whole (Gregersen & Black, 1992). As a result, though absent

opportunism, their efforts may gradually deviate from the MNEs’ overall goals. Along with a

prolonged exposure to the MNE’s overall setting, a poor person–organization fit would start to

surface.

Economizing Mechanism: Ex Ante Socialization

Meanwhile, there are some externally hired HCN GMs in the data striving to resolve the

divided engagement issue. Taking GM 2 of Water C as an example, he told me, “As a GM,

sometimes you have to make a decision that might not be the best for your subsidiary. It’s a

decision made by the HQs. You have to balance that.” I found that the divided engagement issue

is effectively addressed in MNEs where both the MNE decision markers make an effort to

socialize ex ante the appropriate HCN candidate into the corporate culture

, and the subsidiary

GM candidate also mindfully searched for the person-organization fit before joining the

subsidiary. As noted by DeOrtentiis et al. (2018), in addition to skills and abilities, the person–

organization fit is also based on the match between what the candidate values and what the

values of the organization are perceived to be. My data mirror the value-match supposition here.

For example, GM 4 in Agriculture A pointed out that the specific values of the organization he

was looking for prior to joining the subsidiary include “integrity”, “customer centricity”, and

“partnership”. The data, therefore, suggest that effective socialization can take place prior to

successions, which is inconsistent with the assumption that it only marks the beginning of

socialization when the subsidiary GM is hired (Moreland & Levine, 2002). I call this BRel

In this essay, the meaning of the term corporate culture includes both organizational climate and organizational

culture, given that the differences between these two constructs are quite small (Fey & Beamish, 2000). Therefore,

corporate culture here is both value-oriented and practice oriented. This is also consistent with how the informants in

this study use the term corporate culture.

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economizing mechanism ex ante socialization. In formal terms,

Proposition 4: Ex ante socialization enables the externally hired HCN GM successors in

local-market-seeking subsidiaries to reduce the likelihood of divided engagement.

Table 13 summarizes this study’s evidence on the link between ex ante socialization (or

lack thereof) and the outsider HCN subsidiary GM successor’s divided engagement.

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Table 13: External HCNs, Divided Engagement, and Ex Ante Socialization

Subsidiary

Successor

Replication

Successor

Type

Subsidiary

Performance

Divided

Engagement

Economizing

Mechanism

Examples

Water C

GM 2

Theoretical

Outsider

HCN

Satisfactory

Ex Ante

Socialization

Subsidiary GM: "I worked as a customer

of this company for many years, so I

know them...I had several conversations

with those who work in this company in

order to gain more insiders’ views. The

company then flew me to Israel. I spent

almost three full days being interviewed."

Regional CEO: “Socialization is

important because of trust. Teaching him

about the company (ex post) is hard.”

Agriculture A

GM 3

Literal

Outsider

HCN

Not

Satisfactory

Yes

Ex Ante

Socialization

Subsidiary GM: "Israeli companies are

innovative... entrepreneurial…Her

strategy is to stabilize the business

only…Our new Regional CEO thought

she couldn’t make any changes."

Previous Regional CEO: “She did not

have much experience in (this field). But

she had worked for me for some time in

another firm and was familiar with the

culture.”

GM 4

Theoretical

Outsider

HCN

Satisfactory

Ex Ante

Socialization

Subsidiary GM: "My boss who used to be

the GM of (another MNE) joined this

MNE as the VP International and then

Asian Region President. I identified with

him a lot as we worked together for many

years. He invited me to join this

subsidiary...The MNE's culture is similar

to that of MNEs where I worked before."

Agriculture B

GM 5

Theoretical

Outsider

HCN

Satisfactory

Ex Ante

Socialization

Director: "Many people know who you

are today, you cannot make up a story."

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Paper A

GM 13

Literal

Outsider

HCN

Not

satisfactory

Yes

None

Corporate Communication Manager: "He

has a great ambition…But nothing has

been changed, we have our own ways of

doing things...After two months, he was

fired."

Paper B

GM 1

Literal

Outsider

HCN

Not

satisfactory

Yes

None

Corporate Affairs Manager: "The

predecessor was focused too much on

numbers, leading to problems on both

customers’ end and our end. He had a

huge pressure to deliver the budget under

the supervision of the president, and thus

being very risk-averse...Although the

company only started operation since

2012, and it started to be profitable since

2013, the president’s expectation was

higher than the real performance…This is

an important market."

Director: "Only profitability is not

enough, sometimes 50% profit margin is

not good enough…Our president wants to

know whether you have tired all possible

solutions and exhausted all possible paths

to grow."

Electronics A

GM 4

Literal

Outsider

HCN

Not

satisfactory

Yes

Acculturation

Deputy GM: "The incumbent GM worked

in the previous company for over 30

years…He said that he had difficulties in

adjusting his mindset to suit our culture."

Compared

Subsidiary 1

GM 2

Theoretical

Outsider

HCN

Satisfactory

Ex Ante

Socialization

HR Manager: "We did lots of evaluations

regarding the person-organization fit,

especially the match of values, such as

integrity and corporate culture…Our

MNE has many things similar to the

MNE for which he has worked since

graduation."

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As shown in Table 13, I found that most of the subsidiary successors can avoid the divided

engagement problem if they have gone through an ex ante socialization process before joining

the subsidiary. As GM 2 of Water C noted, “Don’t marry right away…I worked as a customer of

this company for many years, so I know them...Before joining (Water) I had several

conversations with those who work in this company in order to gain more insider views. The

company then flew me to Israel. I spent almost three full days being interviewed.” The same

“deep interview” is also found in Agriculture B’s hiring process of GM 5. I thus concluded that

economizing on this facet of BRel leads to the alignment of expectations and in turn, increases

goal clarity and buy-in from the parties involved (Verbeke & Greidanus, 2009). As noted by

Kano and Verbeke (2015), the clear perceptions of “who they are and what they stand for” are a

strong factor in the managers’ commitment to organizational action.

Moreover, once the relational foundation is in place, the open and transparent

communications between the outsider HCN subsidiary GM and the MNE decision makers will

be more likely to occur, when can in turn reduce the uncertainty about the way in which future

contingencies will be addressed. O'Donnell (2000) viewed this as a vertical integrating

mechanism. As GM 2 of Water C noted, “I communicate everything in a very transparent

manner to the HQs… Informing doesn’t mean you are controlling…Don’t call only when you

have a problem, but inform when you have good news.” Somewhat similar evidence was given

by the informant from Agriculture A, “I develop sales according to the corporate’s overall goal.

I maintain this good relationship through open and honest communications with the HQs… and

never cover up problems. My boss also tells me every day what he heard. Trust and confidence

are the foundation here.” On this basis, I see ex ante socialization as an antecedent of the

effective vertical integration, leading to satisfactory subsidiary performance.

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Only one GM successor in my data (i.e., GM 4 in Electronics A) went through an ex post

acculturation process through cultural conflict management training. However, although the

Regional CEO thought the acculturation process works, the deputy GM who works closely with

the successor told us: “It is difficult to change his mindset.” In the follow-on interview, this

informant further noted, “The on-the-job training doesn’t work.” I view this as symptomatic of

genuine difficulties in culture unlearning (Kano & Verbeke, 2015). In combination, the

foregoing discussion thus suggests that organizational cultures are not only shaped essentially

through an internal process (Johns, 2006), they can also be similar across MNEs. Therefore,

subsidiary GM candidates can proactively choose the one which suits them the best, and thus

avoiding the tenuous cultural unlearning process. It also allows the MNE to choose the

candidates who are “hyper-normal” towards its organizational culture (Caprar, 2011).

One exception is the GM 3 of Agriculture A. She had gone through an ex ante socialization

process and developed close social ties to the previous Regional CEO before working for

Agriculture A. In the first several years, her performance was also fairly satisfactory. However,

after the new Regional CEO took office, the organizational culture changed significantly. The

incumbent subsidiary GM from Agriculture A said: “Israeli companies are innovative and

entrepreneurial…Her strategy, however, is to stabilize the subsidiary business only…Our new

Regional CEO thought she could not make any changes.” Based on this anomaly, I can conclude

that: first, culture unlearning is indeed difficult; and second, a boundary condition of my theory

is that ex ante socialization may only work when the corporate culture itself is relatively stable.

The HR manager of the compared subsidiary 1 told me the similar strategy her company

adopted, further corroborating the validity of Proposition 4. Specifically, she emphasized the

importance of culture fit, and told me that the candidate also indicated that the company’s culture

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is very similar to that of his previous employer.

Expatriated PCNs and Right-Minded Regression

Many MNEs tend to expatriate PCN GMs to manage their foreign subsidiaries (Tungli &

Peiperl, 2009), and it seems to still be the case today, as evidenced by the informant who was a

global leadership expert. Indeed, there exist some advantages of appointing PCN subsidiary

GMs. As mentioned earlier, PCNs might be closer to headquarters (Michailova et al., 2016), and

know more about the MNE’s culture (Tarique et al., 2006). Their identification with the MNE

decision makers can therefore be stronger, reducing their willingness to engage in ex post

opportunism. Also, given that local-market-seeking-subsidiaries need more resource support

from the MNEs to overcome the liabilities of foreignness (Lee, Chung, & Beamish, 2019), using

PCN GMs would allow the subsidiary to better access the needed resources to further capitalize

on the performance-enhancing potential of the market-seeking strategy.

But existing studies also hold that PCNs are associated with a higher failure rate (Harvey &

Moeller, 2009). When using PCNs, strategic planning often fails at the operational level

(Collings et al., 2007). To add another level of uncertainty, my data showed that while

expatriating PCN subsidiary GMs can curb ex post opportunism, this strategy may beget a new

facet of BRel, which can ultimately reduce the subsidiary GM’s local market expansion

capabilities. Specifically, I found that some PCN subsidiary GMs, albeit well-intentioned, have a

strong attachment to existing practices. As a result, they tend to not delegate authority to the

local managers, hindering market knowledge acquisition which is the corner stone of successful

internationalization, and leading to unsatisfactory subsidiary performance. Neeley and Reiche

(2020) revealed a somewhat similar case that some global leaders from HQs are directive such

that they tend to apply a standard approach and maintain a previously proven leadership style.

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Kano and Verbeke (2015) term this expression of BRel right-minded regression (i.e., the

tendency to surrender to the force of old habit). In formal terms,

Proposition 5: Expatriating a PCN subsidiary GM successor to the local-market-seeking

subsidiary may lead to right-minded regression that renders subsidiary performance

unsatisfactory.

For example, in Water A, the Regional CEO said: “I had to ask the GM to dedicate

authority to segment managers, but it took three years for him to realize the change.” This

Regional CEO thought the subsidiary GM was not “confident enough” (though in good faith) in

making changes. Similarly, as the corporate communication manager of Paper noted, “When the

local guy tried to explain it to them, the GMs only used their own way of thinking to understand

the local situation.” Somewhat similar evidence is found in Agriculture B, as the informant

explained, “The (PCN) GM was dreaming crazy…I didn’t get access to this guy…He was

thinking at a very high level, he was not moving down.”

An alternative explanation is that the foregoing behaviors of the PCN subsidiary GMs

might be conceived of as moral hazard due to the different goals in the pursuit of self-interests

and the information asymmetry (Hölmstrom, 1979). Thus opportunism might be the underlying

micro-foundation. I was also told by the informant from one compared subsidiary (of a US

MNE) that some PCN GMs in his subsidiary did behave opportunistically, because the length of

their assignment was only two to three years, so they spent “half of the time in planning to return

home.” This seems in line with Tung’s (1988) observations on some US MNEs. Most of my

observations here, however, suggest that the PCN subsidiary GMs, on the contrary, are fully

committed to their work in the subsidiary, challenging the moral hazard assumption. It thus

seems that the GMs’ subsidiary identification in the present context, same as that of expatriated

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HCNs, is nested within the MNE, rendering role conflicts (and thus opportunism) less likely. But

the right-minded regression still renders these GMs ill-equipped to make accurate

implementation plans that fit the host country specificities, despite the fact that their business

strategy might be appropriate (Vance, Vaiman, & Andersen, 2009). Bringing to light the accurate

micro-foundation is important in that opportunism and right-minded regression would need

different remedies.

The evidence I collected from the additional interviews with the informants of the

compared subsidiaries further bolstered the inference. For example, the sales manager from the

compared subsidiary 3 said: “(PCN) GMs don’t listen, they put the requests from the HQs to the

local team...They do not take the local situation into consideration…There are seemingly two

systems running in parallel, the Chinese versus the Korean.” Regression may also lead to a slow

decision-making process. As the sales manager of the compared subsidiary 11 explained, “(The

PCN GM) lacks the sense of safety and intervenes too much and the result is that no one in the

subsidiary would like to make decisions, because they know it is only the boss who makes the

decision, it is too inefficient.”

Economizing Mechanism: Balanced Local Empowerment

At the same time, however, the interviews showed that there are also PCN subsidiary GMs

who effectively turned around the subsidiary’s poor performance (e.g., GM 2 of Electronics B

and GM 2 of Water B) and who achieved a fast growth in local sales (GM 3 of Electronics B). I

concluded, as the data suggested, that a universal safeguard enacted by these GMs to address

right-minded regression was that these PCN subsidiary GMs were willing to delegate power to

local managers to develop business while balancing hierarchy and flexibility. Here, delegation is

a process whereby the PCN GM transfers the decision-making authority to the subordinates in

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the subsidiary (Leana, 1987), but in a controlled and dynamic manner. Indeed, the downward

deference model formulated by Neely and Reiche (2020) suggested that novelty and

unfamiliarity of the host country context can motivate people with hierarchical power to improve

their perception of those in lower ranks to lead the charge locally. However, as the deputy GM

(who is a PCN) of Electronics A summarized, “After you immersed yourself into the local

context for a while, you would then know that not everything the local team said is correct.”

Given that the inherent function of the expatriated GM is to give strategic direction on behalf of

the HQs, therefore, one Regional CEO of Electronics told us, “The level of delegation has to be

appropriate.” As such, my model departs from the downward deference model by accounting

for the effect of the dynamic change of the PCN GM’s local-knowledge base on the level of

delegation. I call this BRel economizing mechanism balanced local empowerment. Formally,

Proposition 6: Balanced local empowerment enables the PCN subsidiary GM successors

in local-market-seeking subsidiaries to reduce the likelihood of right-minded regression.

Table 14 shows this study’s evidence on the link between balanced local empowerment (or

lack thereof) and the PCN subsidiary GM successor’s ability to economize on right-minded

regression.

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Table 14: PCNs, Right-Minded Regression, and Balanced Local Empowerment

Subsidiary

Successor

Replication

Successor

Type

Subsidiary

Performance

Right-

Minded

Regression

Economizing

Mechanism

Examples

Water A

GM 1

Literal

PCNs

Not satisfactory

Yes

None

Regional CEO: "The subsidiary in

China was very slow…I had to ask

the GM to dedicate authority to

segment managers, but it took three

years for him to realize the change."

GM 2

Theoretical

PCNs

Satisfactory

Empowerment

Subsidiary GM: "I promoted synergy

among different segments...you

should have people in place and give

them more autonomy. I have a

different perception about how the

firm works from the predecessor."

Water B

GM 2

Theoretical

PCNs

Satisfactory

Empowerment

Subsidiary GM: "I need someone

who really knows the market...I plan

to appoint my subordinate (an India)

to be my successor."

Electronics B

GM 3

Theoretical

PCNs

Satisfactory

Empowerment

Regional CEO: "At the end of day, it

is a team work...we have strong

incentives to motivate the local

people…Don’t doubt the man you

use."

Compared Subsidiary 3

n.a.

Literal

PCNs

Not satisfactory

Yes

None

Sales Manager: "Sometimes the

(PCN) GMs don’t listen, they only

put the requests from HQs to the

local team...Sometimes expatriate

GMs do not take the local situation

into consideration…There are

seemingly two systems running in

parallel, the Chinese versus the

Korean."

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Compared Subsidiary 4

GM 2

Literal

PCNs

Not satisfactory

Yes

None

Incumbent Subsidiary GM: "He was

hard to read... He chose not to side

with the Chinese team."

Compared Subsidiary 9

GM 2

Theoretical

PCNs

Satisfactory

Empowerment

Subsidiary CFO: "In order to achieve

localization, we use a local sales

manager who report to the GM."

Compared Subsidiary

GM 1

Theoretical

PCNs

Satisfactory

Empowerment

Subsidiary GM: "My solution is to

rely on my ‘right’ hand, Yu (local

employee), to bridge the (cultural)

gap."

160

It is straightforward that the HCN employees are more locally embedded. Relative to the

PCN subsidiary GMs, they have spent more time in the host country and know the language and

culture. Therefore, they have more accurate information upon which to base sound business

decisions and are more able to harnesses local-market-seeking opportunities (Chung et al., 2015).

In support of this view, the subsidiary GM of Water B who is an Israeli told us: “I cannot say

that I knew everything…We are an ‘Indian’ Company...We are taking projects in a way that is

not common in Israel…So you cannot 100% control. You only need to control the bigger

picture.” More importantly, this approach also motivated local managers to put in effort to

localize the operations. Tight control normally signals a lack of adequate trust (Inkpen & Currall,

2004; Rousseau et al., 1998). In contrast, delegating the authority to the employees demonstrates

the PCN GM’s belief in the positive intensions and trustworthiness of these employees (Leana,

1987), which will in turn enhance the employees’ commitment to the subsidiary. This is

consistent with the basic thesis of Vroom and Jago (1988) that under certain circumstances

delegation will allow managers to gain both more information and increased support from the

subordinates.

Indeed, Luo (2003) stressed that in market-seeking subsidiaries, local managers do not

want unnecessary levels of control. To be innovative, adaptive, and entrepreneurial, local

managers need to be motivated. This also explains why GM 3 of Electronics B relies heavily on

incentives to motivate the local managers in order to nourish operations in the host country.

Empowerment here is conceived of as an incentive. The informant noted: “At the end of the day,

it is a team work…Don’t doubt the man you use.” This point is also corroborated by the GM

successor of the informant. “Empowerment will motivate them. This is very critical, because they

do not want to be a passive implementor. They want to have a bit of creativity…If I tightly

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control everything, I will be worn out. They will be worn out as well (laugh).” In this regard,

then, the local empowerment should not be simply viewed as (normative and structural) means

of allocating jobs. It is a trust building and motivating process based on interactive dynamics.

This mechanism is, to a certain extent, personal and informal. Furthermore, Gregersen and Black

(1992) found that such interactive dynamics can then further increase the PCN managers’ sense

of dual citizenship. The interview data echo this argument.

However, local empowerment in the present context does not suggest that the flexibility is

unchecked and the general usefulness of a hierarchy is dismissed (cf. Neeley & Reiche, 2020).

On the surface, control and empowerment might seem to conflict. But the interview data show

that the PCN subsidiary GMs take efforts to ensure that the local team’s work accord with the

organizational requirement. As evidenced by the following quote from the GM of Water B, “We

need to put some limitations and follow some corporate standards…We need to show our

management that we are able to collect the money back. It is an accumulated experience. We

made some mistakes in the beginning.” The incumbent GM of Electronics B (who was

expatriated to the host country since 2007) put it this way, “Empowerment only occurs within the

established rules, which I established together with the local team. For example, before signing

a contract with distributor, we have to communicate thoroughly internally what the targeted goal

and the rebate level are. Within this frame then, I just let them have the power to make their own

decisions.” In this sense, local empowerment here mirrors the notion of dynamic delegation such

that GMs relinquish possession of the baton to the subordinates, but they are likely to stay at

arm’s length from possession of the baton (Klein, Ziegert, Knight, & Xiao, 2006). Indeed, in

Electronics A, the deputy GM told us, “We use to have full delegation here in Europe, but now

we are taking back some control.” But different from dynamic delegation where leaders

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withdraw delegation when based on their expertise, they perceive the magnitude of errors that

the subordinates might commit is too great, my interview data suggest that PCN subsidiary GMs

take back some control when their understanding of the local situation improves.

In my interview data, there is only one PCN (i.e., GM 2 of Water A) who is not an

expatriate (as he was hired in the host country labor market). This GM, however, also

emphasized the importance of local empowerment, even though he has been in China for 12

years. This GM summarized: “I never say I know everything about China. Every day you

encounter something new.” I also found the similar local empowerment mechanism adopted in

the compared subsidiaries 9 and 10. Specifically, the PCN GM of the subsidiary 10 who had

stayed in China for over nine years told us, “I will always be a foreigner there and I know it.”

This mind-set explains why he would be willing to rely on his local subordinate to enhance the

subsidiary’s responsiveness, and thus further bolstering the inference.

DISCUSSION

I re-examined the roles of subsidiary GMs, which are often oversimplified or obscured by

GMs’ nationalities (Meyer et al., 2020). In-depth queries of rich data afforded me a well-

integrated understanding of how subsidiary GM succession decision making unfolds within a set

of MNEs. In this process, to use McNulty and Brewster’s (2017) phrasing, I disrupted the

assumptions of the “nationality” paradigm by elaborating a nuanced categorization of subsidiary

GM successors. The essential point made in this paper is that the origin of the subsidiary GM

successors has both subtle and powerful effects on the efficacy of the nationality-based strategy.

This paper contributes to the strategic leadership literature as well. Anchoring the origin-

based succession strategy in the setting of foreign subsidiaries enabled me to shed additional

lights on the nature and the consequences of successor origin. The insider/outsider terminology

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alone is overly simplistic to inform subsidiary GM successions. When lacking theoretical

nuances, they may yield misleading prescriptions for behavioral strategy in specific contexts. I

offered alternative ways of looking at the successor origin issue and provided unexpected

insights. Promoting from within the subsidiary does not strictly determine a priori whether the

new GM will act in the best interests of the subsidiary or the MNE as a whole. On the other

hand, using outsider candidates does not necessarily lead to information asymmetry and agency

problem. I thus conclude that to more fully explain the implications of successor origin, a

dynamic and integrative perspective is warranted.

As illustrated in Figure 2, I used the empirical observations, formulated as Propositions 1

to 6, to develop a micro-foundational model that maps how the BRel and the economizing

mechanisms link the subsidiary GM succession strategies to subsidiary performance. By using an

improved categorization scheme, this model can account for both the empirical anomalies

identified here and the prior associations of attributes (i.e., successor nationality or origin) and

organizational outcomes. As a result, it can thus augment theoretical predictions and pluralism.

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Figure 2: The Model of Subsidiary GM Successions and Effectiveness

This study responds to the calls for incorporating the nationality of the subsidiary GM into

the conceptualization of dual identification and the calls for exploring the negative consequences

of dual identification (Vora et al., 2007). In contrast with generally tenable inferences, my data

“reversed the signs” (Johns, 2006) and demonstrated that appointing HCN GM successors is not

always the best strategy for local-market-seeking subsidiaries. Because trust can have a dark

side, which will reduce the alertness needed (Anderson & Jap, 2005), and because dual

identification may open up opportunities for role stress in the face of conflicting goals, which can

in turn reduce the subsidiary GMs’ sense of affiliation to both the MNE and the subsidiary (Vora

et al., 2007), it is likely that some insider HCN subsidiary GM successors are both able and

willing to leverage their local knowledge and social ties to pursue self-interest with deceitfulness

after they take office. Ex post opportunism, therefore, may ultimately arise and lead to

unsatisfactory subsidiary performance.

Meanwhile, while I concur that agency and transaction costs minimization can play an

Unsatisfactory

Subsidiary

Performance

Insider HCN

Expatriated HCN

Outsider HCN

Expatriated PCN

Bounded ReliabilitySuccession Strategy Consequence

Ex Post Opportunism

Divided Engagement

Right-Minded Regression

Economizing Mechanism

Ex Ante Socialization

Balanced Local

Empowerment

P5 (+)

P2 (-)

P3 (+)

P4 (-)

P1 (+)

P6 (-)

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important role in influencing the international staffing decision (Tan & Mahoney, 2006), I found

that opportunism in the present context is a situational occurrence (Lumineau & Verbeke, 2016).

To economize on opportunism, some MNE decision makers expatriated HCN subsidiary GMs

from within the MNE but outside the subsidiary. These expatriated GMs did not tend to spend

less time with local people (c.f March, 1992). In contrast, they can simultaneously realize dual

identification while being equipped with a sufficient level of local knowledge to improve the

subsidiary’s local responsiveness. This finding thus calls into the question the argument that

those GMs whose talent most fits the position might also be the ones that the MNE will incur

substantial costs in controlling their behaviour (Tan & Mahoney, 2006).

But expatriated HCN GM candidates as such are not always readily available. The more

common approaches identified here are that MNE decision makers deploy outsider HCN

subsidiary GMs or use PCN subsidiary GMs, both of which can also effectively limit ex post

opportunism. However, the interview data revealed that these succession strategies would entail

new facets of BRel. To address divided the engagement problem, Proposition 5 suggests the use

of ex ante socialization. Although prior studies showed that ex post acculturation may also

nurture common identity, the empirical reality here suggested a dynamic view, highlighting the

importance of socialization timing, inter alia, in the face of difficulties in cultural unlearning. I

thus extend the work of Caprar (2011) by adding that cultural alteration of the HCNs can occur

prior to the successions.

To economize on right-minded regression, on the other hand, Proposition 6 suggests the

use of balanced local empowerment. This is consistent with the instrumental understanding of

downward deference (Neeley & Reiche, 2020) and underscores the notion that local flexibility is

needed in order to motivate local managers to harnesses local-market-seeking opportunities

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(Luo, 2003). But I add to these views by revealing that, at least for PCN GMs in local-market-

subsidiaries of manufacturing MNEs, local empowerment does not suggest that the flexibility is

unconstrained and hierarchy is disregarded. The expatriated PCN GMs, due to their lack of local

knowledge, tend to rely on the local team. However, they also need to ensure that the local

operation is in line with the MNE’s overall goal. The effective solution, thus, seems to be a

hybrid mechanism consisting of both delegation and control, which enhances flexibility, allows

for small errors, while providing sufficient order.

In sum, both safeguards mentioned above are interpersonal processes, facilitating

cooperative and open relationships. These revealed safeguards comply with the core tenet of

evolutionary theory that the goal of the MNE is to develop a harmonious social community

(Kogut & Zander, 1993). By showing a positive strategic value derived from dual commitments

(Gregersen & Black, 1992), we empirically corroborate the argument of O’Donnell (2000) that

the design of organizational control system should be more involved than the limited solutions

prescribed by agency theory.

The foregoing efforts to equip theory with managerial relevance also allow me to address

the call by Kano and Verbeke (2015) to examine the various expressions of BRel in large MNEs,

focusing on both their antecedents and consequences. In so doing, I corroborated the value of

BRel as a standard micro-foundation in international management research. More deeply, the

analysis made a strong case for the need to consider the different facets of BRel in an integrated

manner, because the strategy to address one BRel challenge may inadvertently lead to another

BRel challenge.

Limitations and Future Research Opportunities

To continue this endeavor of micro-foundational theorizing (Foss & Pedersen, 2019), it

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would be fruitful to further add nuance to the model formulated here. One possible direction is to

draw a clear distinction between relay and non-relay succession (Zhang & Rajagopalan, 2004),

as it may engender different bases of subsidiary GM power, and different social ties of the

subsidiary GM. Also, future research could incorporate the missions of the expatriated subsidiary

GMs. Not all expatriate assignments are the same (Caligiuri & Bonache, 2016). Some expatriates

represent the long arm of the headquarters, whereas others build informal communication

networks or transfer organizational culture (Harzing, 2001; Nohria & Ghoshal, 1997). Some

expatriates are selected for postings, while others are self-initiated (Cerdin & Selmer, 2014;

Suutari & Brewster, 2000). The duration of international assignments can also vary (Starr &

Currie, 2009), which may influence the BRel of the subsidiary GMs. Relatedly, future research

can also investigate other facets of BRel, thus extending the model formulated here.

Given the absence of inpatriates in the data, another promising research avenue would be

to investigate whether being an inpatriate can moderate the effect of being an insider HCN

subsidiary GM on subsidiary performance. As inpatriates are more likely to develop a global

mindset (Harvey, Speier, & Novicevic, 1999), and some MNEs use inpatriation to develop

subsidiary managers (Tharenou & Harvey, 2006), it seems likely that when inpatriates return to

the host country, they can undertake both localization and integration more effectively (Sarabi,

Froese, & Hamori, 2017) and develop the strong sense of dual identification quickly (Vora et al.,

2007). This line of reasoning may also apply to returnees, who have gone abroad to study or

work, then return to their home country (Roberts & Beamish, 2017). Therefore, I hope future

research can add meaningful observations to our model by exploring whether ex post

opportunism would still arise in those cases. Also, it would be fruitful to further explore the

specific economizing mechanisms applied by outsider HCNs.

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Meanwhile, as the subsidiary GM successor’ personality characteristics, can also affect the

MNE’s decision to “buy versus make” global leaders (Caligiuri, 2006), future research on this

topic could explore how successors’ personality traits moderate the relationships I formulated.

Finally, and at a more macro-level, for a better alignment between management practices and

academic descriptions, future studies can account for the environmental forces that moderate the

factors underlying my model. Contingencies in this regard may include national cultures (Toh &

DeNisi, 2003), institutions (Tao, Liu, Gao, & Xia, 2018), economy (Sonkova, 2015), and

environmental turbulence (Williams et al., 2017).

Managerial Implications

This study provides several implications for practitioners. First, although it seems unwise

to play down the talents of insiders (Mellahi & Collings, 2010), I caution against the use of

insider HCN subsidiary GM successors as a way of fully achieving the subsidiary’s local-

market-seeking role. In the middle of the dual identification development process, the insider

HCN subsidiary GM successors may be pulled in two directions, thus losing the sense of

affiliation to both entities. This can be problematic. A remedy is to expatriate an HCN GM, who

is equally capable yet may behave less opportunistically. The challenge for MNE decision

makers then becomes building a cadre of such competent talents. This is exactly what Water is

doing nowadays.

Second, given that “competition for global leaders to manage overseas operations will

steadily intensify” (Collings et al., 2007: 201), and that individuals are often reluctant to relocate

internationally (Minbaeva & Collings, 2013), spotting external talent in the host country makes

good business sense. This is also a timely solution, considering that the COVID-19 pandemic

renders sending managers on international assignments even more difficult (Caligiuri, De Cieri,

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Minbaeva, Verbeke, & Zimmermann, 2020). However, it is critical to ensure the common goals

that chart the course have already been in place when the outsider HCN GM takes office. Such

appropriate antecedent conditions, enabled by trusting, prior interactions, seem more germane

than on-the-job acculturation. To that end, patience is crucial, as stressed by two Regional CEOs

in the interview data, “Don’t make the choice under pressure.”

Third, while I concur that PCN assignment contains control elements (Collings et al., 2009;

Harzing, 2001), these managers might, though absent opportunism, surrender to the force of their

old habit, thus exerting unnecessary levels of control or even interference to local managers. This

approach can generate rigidity (García-Cabrera & García-Soto, 2012). In contrast, encouraging

the PCN GMs in a hierarchical bureaucracy to proactively delegate authority to the local

managers will have a profound effect on motivating the local managers.

CONCLUSION

Grounded in both the extant literature and a qualitative inquiry, this essay developed a

model of local-market-seeking subsidiary GM successions and effectiveness. The central

message from my study is that we need to consider in an integrated way the choice of GM

successors which has been studied by separate paradigms. The results underscored the

continuing relevance of contingency models of GM successions. Delving into the micro-

foundations, I concluded that effective GM successors for local-market-seeking subsidiaries need

to be able to simultaneously address various facets of BRel. I delineated several safeguards that

can enable these subsidiary GM successors to reduce BRel. If the propositions formulated in this

study can survive future empirical tests, they can be viewed as a major step forward in our

understanding of the choices of subsidiary GM successors.

General Manager Succession in Multinational Enterprise Subsidiaries.pdf

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